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>> An empty shelf of baby formulas are not a sign of "economy is too hot" The highest rate of inflation since 1981 is a sign of "economy is too hot". The Fed

>> An empty shelf of baby formulas are not a sign of "economy is too hot" The highest rate of inflation since 1981 is a sign of "economy is too hot". The Fed has two jobs: keep both unemployment and inflation low. Unemployment is near 40 year lows, inflation is near 40 year highs. You know what is going to happen, and the Fed has said what is going to happen, if you understand Fedspeak. They're going to raise rates, they're going to keep raising rates, they're not going to stop just because inflation slows a little, and there's a good possibility it will cause a recession.

closedloop129 4y ago
Is the Fed able to stop money supply at all? With crypto coins, the market can create its own liquidity if the Fed rises interest rates.
zarzavat 4y ago
There’s two kinds of inflation. Demand-driven inflation caused by people having too much purchasing power. And supply-driven inflation because of shortages or supply chain. Changing interest rates does not fix supply chain problems. It actually makes them worse because it removes the financial headroom that companies involved in those supply chains have to invest in improvements. For example, there is a shortage of computer chips. Say that you are Intel or Texas Instruments. You want to invest in producing more chips. Does increasing interest rates and probable recession make the magnitude of that investment go up or down? The Fed is like a surgeon that has amputated the wrong leg. Not only is the patient missing a perfectly good leg, but the other leg still has gangrene.
- lumost 4y ago
  On the other hand, if everyone runs out and tries to build giant fabs - then the price of the goods and services required to make giant fabs will rise. If the interest rates are higher, then there will be fewer fab orders - but the price per fab will be lower.

closedloop129 4y ago

Is the Fed able to stop money supply at all? With crypto coins, the market can create its own liquidity if the Fed rises interest rates.

zarzavat 4y ago

There’s two kinds of inflation. Demand-driven inflation caused by people having too much purchasing power. And supply-driven inflation because of shortages or supply chain. Changing interest rates does not fix supply chain problems. It actually makes them worse because it removes the financial headroom that companies involved in those supply chains have to invest in improvements. For example, there is a shortage of computer chips. Say that you are Intel or Texas Instruments. You want to invest in producing more chips. Does increasing interest rates and probable recession make the magnitude of that investment go up or down? The Fed is like a surgeon that has amputated the wrong leg. Not only is the patient missing a perfectly good leg, but the other leg still has gangrene.

lumost 4y ago
On the other hand, if everyone runs out and tries to build giant fabs - then the price of the goods and services required to make giant fabs will rise. If the interest rates are higher, then there will be fewer fab orders - but the price per fab will be lower.