Why Inflation Hits Some Harder Than Others

The Federal Reserve's efforts to stimulate the economy through monetary policy don't distribute new money evenly. Instead, the Cantillon Effect explains why some people benefit more than others during periods of inflation.

When the Fed creates new money by buying Treasury bonds and lowering interest rates, the first recipients, banks, financial institutions, and large corporations, gain the most. These early recipients spend or invest the new money before prices rise, while later recipients face higher costs without corresponding income increases.

This discrepancy creates a widening gap between asset owners and wage earners. Those who own stocks, real estate, or businesses see their net worth grow as asset prices rise. In contrast, people who rely on wages, hold cash savings, or rent housing feel the pinch of inflation immediately without the offsetting benefits of rising asset values.

The money multiplier concept further illustrates this imbalance. New money flows through credit and asset markets before trickling down to wages, often too late to keep pace with inflation. This structural inequality explains why many workers feel left behind, even in strong economic conditions.