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The Fed has two choices. They either need to engineer a quick and sharp recession, or give up the inflation fight and drop short term rates. With option one t
by adam_arthur 4y ago
The Fed has two choices.
They either need to engineer a quick and sharp recession, or give up the inflation fight and drop short term rates.
With option one the US can fund debt liabilities on the long end. With option two, the short end.
Otherwise the US government will become insolvent within a few years. To me it’s clear they’re choosing option one.
- mgamache 4y agoRight, I just don't know how it's 'quick'. So much of inflation is supply side and not controlled by the Fed. They have to crush it hard and it may last a decade.
- adam_arthur 4y agoQuick to begin, not to end, I should add. I agree it would likely be a pretty severe recession. Letting inflation run wild for a decade is probably the less painful path all else equal, but for legacy reasons Powell won’t choose that route. He would be remembered as a failure, just as Arthur Burns is. I would add that goods inflation is actually coming down, it’s much more about services inflation now which is labor supply driven, primarily. Services make up a majority of the CPI and aren’t impacted by logistics for the most part.