These charts suggest the high inflation rate will be temporary (2021 only)

Is a high price inflation rate

temporary in 2021?

Much of the money created by the Fed is not making it out into the real world as loans, where it is multiplied by banks making new loans. 

It's building up within banks as massive excess reserves, because the banks aren't lending a lot of it out. 

That is shown by the decline of the US commercial bank Total Loan to Deposit ratio on the first chart.

So while the money supply (M2) had an unprecedented roughly 25% increase in the past year, thanks to the Federal Reserve Bank, money velocity (turnover) is lower than it has been in over a century.

The charts above suggest the high inflation rate in 2021 will not be a multi-year trend.

A high rate of inflation that lasts for many years, like in the 1970s, requires banks to make lots of loans, multiplying the new money initially created out of thin air (aka "printed") by the Federal Reserve Bank. 

Simple definition of "money multiplier":

The Money Multiplier refers to how an initial bank deposit can lead to a bigger final increase in the total money supply.

For example: The Federal Reserve Bank creates $1 million out of thin air to buy $1 million of government Treasury bonds from a commercial bank.

The commercial bank gains a deposit of $1 million from the Fed. 

If this initial $1 million deposit eventually leads to a final money supply increase of roughly $10 million, the money multiplier is said to be 10x.

The money multiplier is a key element of the fractional reserve banking system.

There is an initial increase in bank deposits (aka the "monetary base")  of let's say $1,000,000.

The bank must hold a fraction of this $1,000,000 deposit in reserve (let's say 10%, or $100,000) and can lend out the remaining $900,000 to (hopefully) creditworthy customers. 

These customers will re-deposit the $900,000 they have borrowed in their own banks.

Their banks, as a group, must keep $90,000 (10%) as reserves, and can lend out the remaining $810,000 (90%).

This pattern can continue until the initial $1,000,000 credit creation by the Fed leads to a $10,000,000 increase in the money supply. 

But banks are not forced to make new loans.

At times they are reluctant to make new loans.  

If a loan does not get repaid with interest, the bank loses shareholder money. 

So it makes no sense to "throw money" at borrowers who are a high credit risk, or during a recession, when business is weak.