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Inflation figures are a leading indicator of US monetary policy. All other things being equal, higher inflation readings now means relatively tighter US monetar
by rjknight 5y ago
Inflation figures are a leading indicator of US monetary policy. All other things being equal, higher inflation readings now means relatively tighter US monetary policy later on.
Yes, the Fed has committed to allowing some >2% inflation to make up for past <2% inflation, but it's still the case that policy might tighten one day, and higher inflation now still brings that day closer than it would have been with lower inflation.
- imtringued 5y agoYes, it's true, but persistent inflation requires persistent supply problems. I don't know anything about the gasoline pipeline but if they can't get it to work within a year it is going to cause persistent inflation. If they can get it fixed, gasoline inflation will go away. The Fed is betting that these incidents will resolve themselves, which is why raising rates may not be the best course of action. It's the same thing with Turkey, Argentina, Zimbabwe etc. They suffered from poor farm yields. Turkey needs more investment into agriculture chemical companies, Argentina suffered a drought in 2018, Zimbabwe had land repossession but financial problems and lack of education prevent the new owners from farming on the land they acquired for free. If Turkey can do enough investments it can solve its agriculture problems. If Argentina can diversify away from agriculture it will be less prone to droughts. If Zimbabwe supports farmers it can become self sufficient again. These are examples of persistent shortages, something fundamental broke there and the only way this can be fixed is by raising interest rates, crashing hard and then reallocating the economy to the things that are actually important.