[Jeema101]

I don't think the problem at the current time is inflation - it's deflation. There's less money chasing the same amount of goods and services. That was the case during the Great Depression - and the Fed exacerbated things at that time by not intervening in controlling the money supply because they were bound by rules which prevented them from doing so.

If inflation suddenly increases, then the Fed has tools to combat that. They can sell off some of their balance sheet or raise interest rates to reduce the amount of money in the system. Inflation only occurs because there's too much money chasing goods and services.

[toomuchtodo]

> They can sell off some of their balance sheet or raise interest rates to reduce the amount of money in the system.

The Fed was unable to unwind more than ~$650B out of $4T from their balance sheet in one of the longest expansion periods in US history. How will they do this? This is not a rhetorical question, I am genuinely curious in how people think this will be done if the Federal Reserve itself can't do it (either reducing the balance sheet or influencing the target rate above low single digits).

https://fred.stlouisfed.org/series/WALCL

[cm2187]

And if they can’t do it in good times. Like how much better than 2019 the economy needs to be to unwind more?

[OscarCunningham]

They couldn't do it without causing deflation which they didn't want. But if they were combatting hyperinflation then they would want to cause deflation, so it would be fine.

[tempsy]

Look at what happened in December 2018 when the Fed tried to raise interest rates and let assets bought during the financial crisis roll off at maturity...the market immediately crashed.

Fed is backed into a corner where it can’t raise rates without crashing the market and can’t lower rates now that we’re at 0.