With inflation falling to around 3% per the latest report, which is within the normal range for a growing economy, we can safely conclude that the war on inflation has been won. The dragon may not have been slain, but it has largely gone back to sleep for the foreseeable future. Supply chains seem to have long since fully recovered for the most part, while most of the inflation since then has been wanton "greedflation" by mega-corporations consolidating and rigging the game (and thus interest rates are the wrong tool for the job). And potential recession and even deflation clouds seem to be gathering on the horizon as we speak. Even if there is no recession, keeping interest rates too high for too long can paradoxically increase inflation in the long run, or one could get the two for one special, as Canada unfortunately learned the hard way in the 1980s. The "therapeutic window" for hiking interest rates to fight inflation is therefore closed.
Oh, and we have another housing bubble ready to burst at any time, apparently.
So the FERAL Reserve really needs to stand down, stop raising rates, pause Quantitative Tightening, and start cutting rates yesterday by at least 1% immediately, and eventually to below the inflation rate. Or at least no later than their next meeting. Mr. Powell seems to be really begging for a recession (or worse) with his relentless tempting of fate!
This is the LAST chance we have to avoid a major financial crisis and severe deflationary recession (or worse), and that's if it's not already baked into the cake at this point. Because once that happens, monetary policy (at least by conventional means) will be as utterly futile as pushing on a string.
QED
If interest rates are cut, then the supply chain would probably be fixed in the short term. If people are able to afford more items, such as vehicles or domestic appliances, then companies would have more incentive to fix the supply chain shortage. I think that some companies are more content with price gouging cosumers than fixing the spply chain shortage. If more customers can afford stuff, then companies would have to pay more attention to the customers.
ReplyDelete