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People who make this claim have a poor understanding of the supply/demand dynamic. Just because inflation is caused by supply constraints doesn't mean you can't
by IAmGraydon 3y ago
People who make this claim have a poor understanding of the supply/demand dynamic. Just because inflation is caused by supply constraints doesn't mean you can't fix it by reducing demand. Think about it like a container with an input (supply) and an output (demand) for water. You don't want the container to overflow or to dry up. Too much input without enough output will cause it to overflow. Too much output without enough input will cause it to dry up.
Let's say that this inflation is caused by supply constraint (not enough input). The container is starting to dry up. So what do you do? You have two options: you can either increase the input (fix the supply constraint) or reduce the output (reduce demand) to match the low input. The second option is the one the Fed has chosen as the first is beyond their purview and likely too complex and poorly understood to be immediately fixed at all.