I’m tired of hearing “Bad news is good news”. It seems that every market commentator and market participant is watching for one thing and one thing only: the sign that the Federal Reserve (the FED) will change course and not raise interest rates anymore. Nearly every discussion I hear today in the financial news is about when the FED will pivot. By Christmas? Next year? And so on.
This week's Friday release will be all about the “FED causing inflation/recession” theory. So, check it out and let me know if you have questions. It also gets to where the belief that the Fed has so much control comes from. In short, the Fed can influence economy wide demand by raising/lowering interest rates. (How precisely is a different question). That will also move prices (inflation) and unemployment. In trying to fight inflation - which I think ultimately the Fed can do just less clearly and precisely as they think (something they seem to be admitting lately) - the Fed tightens conditions and causes a recession too. But it is NOT clear that "in order for inflation to return to normal" we "must have" a recession. But it would likely take longer to get there. Hope that helps and thanks for reading
I love the Auernheimer’s Tiger story. And we are so flushed with the idea that Fed actually can control inflation that following your story is jarring. But it does allude to the skeptic in me.
What do you think about the “FED causing inflation/recession” theory? Even the cynics think that the claim for control can also be incorrect if Fed causes inflation or pushes a recession. In any of these situations, FED being effective is not challenged. The challenge is only whether it can micro manage.
Thanks Nikhil.
This week's Friday release will be all about the “FED causing inflation/recession” theory. So, check it out and let me know if you have questions. It also gets to where the belief that the Fed has so much control comes from. In short, the Fed can influence economy wide demand by raising/lowering interest rates. (How precisely is a different question). That will also move prices (inflation) and unemployment. In trying to fight inflation - which I think ultimately the Fed can do just less clearly and precisely as they think (something they seem to be admitting lately) - the Fed tightens conditions and causes a recession too. But it is NOT clear that "in order for inflation to return to normal" we "must have" a recession. But it would likely take longer to get there. Hope that helps and thanks for reading
I am only an economics undergrad right now, so don't judge, but could some of this have to do with China's economic influence?
I love the Auernheimer’s Tiger story. And we are so flushed with the idea that Fed actually can control inflation that following your story is jarring. But it does allude to the skeptic in me.
What do you think about the “FED causing inflation/recession” theory? Even the cynics think that the claim for control can also be incorrect if Fed causes inflation or pushes a recession. In any of these situations, FED being effective is not challenged. The challenge is only whether it can micro manage.