So, What Happens If the Fed Prints Unlimited Money? Will Inflation Skyrocket?

So, What Happens If the Fed Prints Unlimited Money? Will Inflation Skyrocket?

This is a really interesting question with a surprisingly nuanced answer. Let's break it down.

The Fed has printed large amounts of money in three major events in history: World War 2, the Great Financial Crisis (GFC), and COVID. Surprisingly, two of those times led to big inflation, but one did not—the Great Financial Crisis (GFC).

The GFC Case:

After the GFC, the money the Fed printed didn’t flow into the real economy. Instead, it went straight into the financial system. This meant inflation in asset values (think stocks, real estate) but not much inflation in everyday goods like groceries, gas, or services. Essentially, banks took the money and invested it, rather than pumping it into consumers’ pockets.

World War 2 and COVID:

During World War 2, the money was used to build weapons and factories, and the wages paid to workers were spent on consumer goods, which drove inflation. Similarly, during COVID, stimulus checks went straight into people’s hands, fueling demand for goods and pushing inflation in the real economy.

The Key Nuance:

The Fed’s decision on where the money goes matters. If the Fed prints money and it goes into the financial system, we may see asset inflation—rising stock prices, high real estate values, etc.—but less inflation in the goods and services that regular people rely on.

But, if the Fed decides to allocate the money directly to people or businesses (think stimulus checks or government spending on infrastructure), that could cause inflation in everyday prices because it directly boosts demand in the economy.

The Housing Dilemma:

Here’s the tricky part: Housing. Housing is both an asset (something you invest in) and a real good (something you need to live in). This means that any rise in housing prices doesn’t just affect wealth—it affects the cost of living. After the GFC, housing prices soared, causing inflation in both the real economy and asset prices.

Bottom Line:

If the Fed prints money but keeps it within the financial system, we may only see inflation in things like stocks and real estate. But if that money reaches the real economy, prices for goods and services will likely rise too. And since housing plays a role in both, it could act as the wildcard in any potential inflationary scenario.

In short: Money printing = potential inflation, but where the money goes will decide how much and where it hits hardest.