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"To be clear, raising interest rates to appropriate levels curbs inflation as evidenced by all of financial history" Except for the ones analysed by the Fed.

"To be clear, raising interest rates to appropriate levels curbs inflation as evidenced by all of financial history" Except for the ones analysed by the Fed. > We show that a nearly 90 percent reduction in inflation volatility is possible even without any changes in monetary policy when the economy transitions from equal shares of power between workers and firms to a new balance in which firms dominate. In addition, we show that the decline of trade union power reduces the share of monopoly rents appropriated by workers, and thus helps explain the secular decline of labor share, and the rise of profit share. We provide time series and cross sectional evidence. [0]: https://www.federalreserve.gov/econres/feds/files/2022028pap.pdf https://www.federalreserve.gov/econres/feds/files/2022028pap...

adam_arthur 4y ago
Yes, fiscal factors and excess labor supply will keep inflation constrained. But to say higher interest rates lead to higher inflation is simply wrong as evidenced by a huge wealth of history/data. Every country that has tried to combat inflation with lower rates has led to an inflationary spiral. In a perfect world inflation would be controlled primarily via fiscal policy, but this is non-viable in the US political system. E.g. despite the Democrats being savaged in the polls due to inflation, they have yet to actually propose any package to help address inflation. Instead they just tried to convince people that BBB was inflation fighting, when in reality it's structured as a highly inflationary set of legislation. The Fed can't be as targeted as fiscal policy can, so their mechanism to combat inflation naturally leads to recessions. Fiscal could be much more targeted, e.g. temporary taxes on discretionary goods etc. It just so happens to be that sensible policy to curb inflation would also be highly unpopular to most

adam_arthur 4y ago

Yes, fiscal factors and excess labor supply will keep inflation constrained. But to say higher interest rates lead to higher inflation is simply wrong as evidenced by a huge wealth of history/data. Every country that has tried to combat inflation with lower rates has led to an inflationary spiral. In a perfect world inflation would be controlled primarily via fiscal policy, but this is non-viable in the US political system. E.g. despite the Democrats being savaged in the polls due to inflation, they have yet to actually propose any package to help address inflation. Instead they just tried to convince people that BBB was inflation fighting, when in reality it's structured as a highly inflationary set of legislation. The Fed can't be as targeted as fiscal policy can, so their mechanism to combat inflation naturally leads to recessions. Fiscal could be much more targeted, e.g. temporary taxes on discretionary goods etc. It just so happens to be that sensible policy to curb inflation would also be highly unpopular to most