Rate hikes can slow the flow of endogenous money (market and credit-based), but there is too much base money (central bank created) in the global economy. Much of the supply chain disruptions are from too much demand swamping supply capacity. We are fascinated watching the obfuscation over the cause of the inflation, much driven by politics and CYA.
Grab for the plunger and Drano. Inflation will only be tamed by draining base money through Quantitative Tightening (QT).
Getting monetary policy right is difficult, like threading a needle with boxing gloves on. Try it sometime.
But the real culprit is the demand side. It’s about oodles of money in people’s pockets being spent on everything from sports betting, to meme stocks and crypto, to new houses. I understand that getting the amount of a national bailout right ain’t easy, but I think you can argue convincingly that we overdid it.
And so, cutting to the chase, here’s Summers see going forward:
“I like to try to keep my facts relatively similar,” Summers said this week.
“There’s never been a moment when we had inflation over 4% and unemployment below 4%, when we didn’t have a recession within the next two years. Inflation is now well above 4%. Unemployment is now well below 4%, especially if you adjust for vacancies. So I think it’s pretty likely that we’re going to have a recession sometime within the next two years. I’m more confident about that than I am about what’s going to happen to interest rates. – Yahoo Finance