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
Thanks Becky and WELCOME to the wonderful world of economics!
No, I don't think the Fed's control of inflation is connected to China. There have been thoughts (and research) suggesting that China becoming a large trading partner over the last 30 years and allowing for cheaper outsourcing of goods allowed prices to lower over time for many consumer goods. There is also some thinking that China closing during Covid hurt supplies (and drove up prices) but those influences seem to have run their course. Those are all longer-term price level issues. The Fed should be able to control either the money supply and/or the interest rate to influence inflation over time. None of that should depend on China. Actually the mechanism for how it works should be the same in China and any country in the world. Some of course depends on their monetary policies and structures, but the mechanisms should all be the same (more money, more aggregate demand...or lower interest rates, more aggregate demand, for example). Sorry... kind of a confusing reply... go back to some of my older posts and read. I think it'll make sense. If you have questions or comments, share anytime. 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?
Thanks Becky and WELCOME to the wonderful world of economics!
No, I don't think the Fed's control of inflation is connected to China. There have been thoughts (and research) suggesting that China becoming a large trading partner over the last 30 years and allowing for cheaper outsourcing of goods allowed prices to lower over time for many consumer goods. There is also some thinking that China closing during Covid hurt supplies (and drove up prices) but those influences seem to have run their course. Those are all longer-term price level issues. The Fed should be able to control either the money supply and/or the interest rate to influence inflation over time. None of that should depend on China. Actually the mechanism for how it works should be the same in China and any country in the world. Some of course depends on their monetary policies and structures, but the mechanisms should all be the same (more money, more aggregate demand...or lower interest rates, more aggregate demand, for example). Sorry... kind of a confusing reply... go back to some of my older posts and read. I think it'll make sense. If you have questions or comments, share anytime. 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.