The Cantillon Effect, the Fed, and Why Inflation Hits People So Differently
Most people experience inflation the same way: prices go up, paychecks don’t keep pace, and somehow it feels like you’re working just as hard to afford less.
What’s less understood is why inflation doesn’t hit everyone equally — and why some people seem to get richer while others fall behind during periods of easy money.
The answer sits at the intersection of how the Federal Reserve works, the money multiplier, and something called the Cantillon Effect.
You don’t need an economics degree to understand it. You just need to follow the money.
How the Federal Reserve Actually Injects Money
When the Federal Reserve wants to stimulate the economy, it doesn’t mail checks to households. It operates through the financial system.
In simple terms, the Fed:
- Buys Treasury bonds and other securities
- Credits banks with new reserves
- Lowers interest rates to encourage borrowing
This process creates new money, but that money doesn’t enter the economy evenly or all at once. It enters at specific points — primarily banks, financial institutions, corporations, and government borrowers.
That’s where the Cantillon Effect begins.
The Cantillon Effect, Simply Explained
The Cantillon Effect says that the people who receive newly created money first benefit the most, while those who receive it last — or not at all — bear the cost.
Why? Because prices don’t rise instantly.
Early recipients spend or invest the new money before prices adjust upward. Later recipients face higher prices without higher incomes.
Think of inflation not as a rising tide that lifts all boats, but as a wave that hits different parts of the shore at different times.
Where the Money Goes First
When the Fed expands the money supply, early beneficiaries tend to be:
- Banks and financial institutions
- Large corporations that borrow cheaply
- Governments running deficits
- Investors who already own assets
This money often flows into:
- Stocks
- Bonds
- Real estate
- Private businesses
Asset prices rise first — often dramatically — because there’s more money chasing the same assets.
This is why markets can soar even when everyday expenses feel unbearable.
The Money Multiplier (Without the Jargon)
The money multiplier is the idea that one dollar of new money can create several dollars of economic activity through lending.
For example:
- A bank receives new reserves
- It lends most of them out
- That loan becomes someone else’s deposit
- Which gets lent again
In theory, this multiplies money throughout the economy.
In practice, it still moves through the same channels first: credit markets, asset markets, and businesses with access to financing.
By the time that money reaches wages — if it does at all — prices have already risen.
What This Means for Wage Earners
For people who primarily earn wages:
- Pay increases tend to be slow and reactive
- Raises come after inflation, not before
- Purchasing power erodes quietly
This is why many workers feel like they’re falling behind even when unemployment is low and the economy is “strong.”
Their income adjusts last.
Inflation acts like a tax that isn’t voted on — one that hits hardest when you don’t have bargaining power or ownership.
What This Means for Asset Owners
For people who own assets:
- Rising asset prices can outpace inflation
- Debt becomes easier to repay with cheaper dollars
- Net worth can rise even if real economic growth is modest
Owning stocks, real estate, or businesses creates a buffer — and often a benefit — during periods of monetary expansion.
This is not about greed or intelligence. It’s about positioning.
Assets sit closer to the source of new money.
And for Those Without Assets
This is where the gap widens.
If you:
- Rent instead of own
- Hold most savings in cash
- Rely primarily on wages
You feel inflation immediately:
- Rent rises
- Food costs jump
- Insurance and utilities climb
But you don’t get the upside of rising asset values.
This is how monetary policy, even when well-intended, can unintentionally widen inequality.
Why This Matters Now
Over the past decade, and especially since 2020, massive monetary expansion has pushed trillions of dollars into the system.
The result?
- Strong asset markets
- Rising living costs
- Growing frustration among working households
People sense something is wrong even if they can’t name it.
The Cantillon Effect explains why.
The Takeaway
Inflation is not just about prices going up. It’s about who gets the money first.
The Federal Reserve doesn’t create winners and losers intentionally — but the structure of the system does it anyway.
Understanding this doesn’t mean you can change monetary policy. But it does mean you can understand your position within it.
If money flows first to assets, then ownership matters.
If wages adjust last, then relying only on income is risky.
And if inflation feels unfair, it’s because — structurally — it is.
That’s not cynicism. That’s economics, plainly explained.
Evan R. Guido, Senior Wealth Advisor, is the Founder of Aksala Wealth Advisors LLC, a 2026 Forbes Best in State Wealth Advisor, a 2018 Forbes Top Next-Gen Advisors award recipient. Evan heads a team of financial strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 Aksala.com eguido@aksalawealth.com 6260 Lake Osprey Dr. Lakewood Ranch, FL 34240. Securities offered through Cetera Wealth Services, LLC member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity. The views and opinions presented in this article are those of Evan R. Guido and not of Cetera or its subsidiaries. These opinions are based on Evan’s observations and research and are not intended to predict or depict performance of any investment. These views are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities and purely for education and entertainment. Past performance does not guarantee future results. The Top Next Gen list includes 250 rising advisors who help manage over $490 billion in client assets. Each advisor was nominated by their firm, then vetted and ranked by SHOOK Research. The rankings, developed by SHOOK Research, are based on an algorithm of qualitative criterion, mostly gained through telephone and in-person due diligence interviews, and quantitative data. Those advisors who are considered have a minimum of four years' experience and the algorithm weighs factors like revenue trends, assets under management, compliance records, industry experience and those that encompass the highest standards of best practices. The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research, is based on an algorithm of qualitative data, rating thousands of wealth advisors with a minimum of seven years' experience and weighing factors like revenue trends, assets under management, compliance records, industry experience, and best practices learned through telephone and in-person interviews. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK receive a fee in exchange for rankings. Listings in these publications and/or awards are not guarantees of future investment success. These recognitions should not be construed as endorsements of the advisor by any clients. No compensation was provided directly or indirectly by the recipient for participation or in connection with obtaining or using these third-party ratings or award.