Inflation is still transitory and the FEDs decision is purely based on political pressure
First of all, why is inflation rising? In basic economic terms, its the distortion between demand and supply caused by a substantial increase in monetary supply that was thrown into the economy as stimulus checks. This increase in monetary supply affects inflation in the long run, as it takes time for it to affect nominal GDP and increase money velocity. How did the checks affect GDP? Consumption. The checks where purely given for people to consume the basic needs in order to survive the quarantine. Consumption leads to demand. Now, if you see consumer spending during 2021, the trend basically went to the moon faster than GME. What happened later? Too much demand and no production caused by the economic crisis. This lead to inflation skyrocketing.
Why is it transitory? If you print 4 trillion USD and throw it into the economy, it will be consumed and will create prices to increase. However, you only got 1 check from the government and you already used it. So theoretically, consumer spending should level out back to its original trend. On the other side, as demand skyrockets, companies will start to produce more. So, in the long run, demand and supply start to level out again. And no, dont come with that Keynes bullshit.
Why is inflation still rising? Well, predicting how high inflation can go is impossible, literally. And the FED is dumb enough to bet that inflation was not going to pass 6% when they literally printed like 8 trillion fucking dollars.
Why do I think this is political pressure? Because inflation hurts most americans, and politicians like to have peoples vote. And mainly what they like to do is talk to please people. So, right when inflation jumped from 5% to 6.8% and Biden had to nominate a director for the FED, here comes Jerome Powell to suddenly say, “oops, its not transitory anymore, we will fight inflation with rate hikes and balance sheet reductions”.
And, looking at what Powell says in the past, he knows that inflation was going to be higher and that it was going to persist for many months. But it only took 2 months for them to realize it wasn’t transitory in the exact time that they had to get nominated and the EXACT time that everyone was talking about how inflation hurts people. I call BS.
How to easily reduce inflation without market panic? Taking some ideas from 2008 to 2016, they should stop QE and keep the balance sheet constant. And on the other side, the federal government should wake the fuck up and try to keep oil prices low, and stop with this “climate change” excuse. And also use military resources in the ports to help with the supply chain issue.
In conclusion, imagine your going 300 MPH in ur new lambo, and you want to go 50 MPH. What do you do? Well, the FED instead of putting pressure in the brakes (would take too much time), they yank the fucking hand break.
We. Are. All. Fucked, and nobody in power gives an absolute fuck
P.S: I probably missed many other factors but this is more general terms
Submitted January 27, 2022 at 11:51AM by kookselslg
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