[neffy]

It won't stop the inflation. When inflation is due to printing money, the only thing that can be done is to sit back and wait for it to work it's way through the system. All raising interest rates would do is trigger a rerun of the Savings and Loan Crisis, as the huge quantity of long term, fixed rate, low interest rate loans, is suddenly devalued by short term, high interest rate loans. (Which is probably going to happen anyway, because Central Bank control over interest rates can be more than slightly illusionary at times like this. (Lenders can work out inflationary devaluation rates just as well as anybody else can.)

2008 was a very different scenario, the money that was printed then was forced into a narrow loop within the financial system and just used to sanitise a lot of bad debt away from the banking system.

In some sense, the eventual logic of the last 20 years of massive increases in the total amount of debt circulating, due to loan securitisation, was that that debt would have to be devalued to make it repayable. And here we are.

[anm89]

I disagree with this. Powell could blow up the entire economy in about 5 seconds if he wanted to by saying rates will be 4% in June and inflation would be done tomorrow. Housing would tank, the stock market would tank, unemployment would sky rocket, wage growth would immediately stop and probably revert a bit. Inflation could have some ups and downs from there but I don't think it would average above 2.

The problem is we can't raise rates without blowing up the economy, not that it wouldn't stop inflation. It doesn't matter how much money is in the system if you nuke velocity back to near zero.

I'm talking in the medium term here. Because the response to this is in my mind literally a 10-20 trillion dollar stimulus package. THEN we will see inflation.

[unyttigfjelltol]

We're assuming the lever of markedly higher interest rates over a long period of time, generates in this tremendously complex economic machine, the output of lower consumer inflation. I'm not sure we'll see that lever pulled anytime soon, and if we do, I'm not confident it will work precisely as you describe.

Asset price inflation will reverse. But that wasn't trickling back to consumer inflation anyway.

Think of it this way. If you had 10x your annual salary to store somewhere, and the values of traditional stores of wealth (e.g., stocks, bonds, and real estate) were seriously stuck in reverse for the foreseeable future, where would you stash your value? Sardines? Bottles of wine?

We forget how young modern finance is, basically since the 1970s. For the first 10 years of that era, both interest rates and consumer inflation increased in tandem. We've built a narrative around that correlation, but what if that narrative is incomplete?

[jyounker]

Inflation in our circumstances isn't due to an increase in the money supply. Here's why:

* Aggregate demands isn't too much different from before the pandemic. * Demand for services has fallen into the toilet. * Demand for goods has gone through the roof.

This massive reallocation of resources from one portion of the economy to another has created a situation where demand for goods far outstrips supply. Therefore we have inflation. (Increases in food prices are caused congestion in the labor market.)

This is not about US economic policy. You can see this by looking at inflation rates in Europe (and specifically Germany). These countries have very different economic policies than the US, but their inflation rates pretty much track what's happening in US. Therefore it is a common effect driving inflation in both places.

[neffy]

Perhaps have a look at recent US money supply behaviour before you get too confident on that one. The EU´s is not much better.

https://fred.stlouisfed.org/series/M2SL

[jyounker]

What's the point? Other countries have widely diverging monetary policies from the US, but they're undergoing the same inflation spikes in the same areas of the economy. If the money supply was the cause then we'd expect to see these diverge, and they're not.

On the other hand we've had months of prices yo-yoing across the economy, both rising and falling. If it was about the money supply then we would not see price decreases following many increases. (e.g. lumber costs a few months ago.)

We also having diverging demand for goods and services.* If it was just about the money supply, and not a demand imbalance then we'd see increases in both demand and cost for services, and those matching increases don't seem to be there.

*See page point 9, page 12/16 of https://www.brookings.edu/wp-content/uploads/2021/09/COVID-F...

[voisin]

> When inflation is due to printing money, the only thing that can be done is to sit back and wait for it to work it's way through the system.

Source? This doesn’t seem right to me at all.

[samspenc]

I suspect there is no source for this, but OP is just summarizing what the Fed is hoping will happen -- basically they have printed too much money but they don't want to raise interest rates either, so they are just going to sit back and wait for the excess money to flow through the system.

[golemotron]

What do you make of the rumors that the Fed will start to hike interest rates next year?

[trcarney]

They won't, there will be too much political pressure for the president with the mid term elections coming for the fed to take the risk of raising rates. If they want to raise rates, they will do it in 2023 so the current regime can blame the fall out on, I'm assuming, the newly elected Republican Congress.

I'm assuming the next cycle will be a huge win for Republicans for two reasons.

1) Things we saw in this last election. For example, a truck driver won in New Jersey against their senate president with a campaign budget of $153

2) Joe Biden's approval rating the the the high to mid 20's

[sharken]

It's interesting how the unpopular decisions are pushed back, but i think that's an accurate assessment of what will happen.

Biden have just dipped below 40% approval rate and has a lot on his plate with the texan abortion law:

https://fivethirtyeight.com/features/texass-abortion-law-is-...

[jonnycomputer]

https://econbrowser.com/archives/2021/11/so-you-want-to-be-a...

[XIVMagnus]

I appreciate you taking the time to explain why it wouldn't stop inflation! Thanks a lot!