If you were Jerome Powell how’d you fight inflation?

[QuarterMillionMan]

Raise interest 1/2%, a whole percentage point, or more? I’d say go bigger at let’s say 5%. It might cause people to stop spending and slow the economy but it should bring inflation back down.

[ua_guy]

Isn't the concern that if rates are raised too much, it will cause a recession? The balance would be to raise rates enough to slow growth, which I think is what Mr. Powell is attempting to do incrementally. Originally I thought the fed would pump the brakes too hard, but I'm glad that it appears they're trying to get this right.

[kork13]

Honestly, it's a high-wire act. Not a no-win situation by any stretch, but a whole lot of ways you can screw it up.

With all my standard macro-economic caveats (no authoritative knowledge or background, based on diddly squat evidence, etc.), my best guess would be to say that the economy could readily tolerate a 1% increase in Fed rates without triggering anything dramatic. Honestly, markets & businesses are already starting to factor in an expectation of significant increases to debt costs in the near future, so it wouldn't be a major shock to the system. So 1% would be my starting point, wait a month or three, and see how things respond... Rinse & repeat.

I do think that continuing with piddly .25% or .5% increases (at least until the needle starts moving in the right direction) would be a mistake. I think 1% is the right increment for now, at least until there's noteworthy movement back toward normal. That said, I probably wouldn't advocate for any single interest rate move greater than 1.5%. While a strong hand is required, we don't want to slap the economy senseless.

[kork13]

Well, the decision is out -- 75 bps higher for now. The Fed is definitely trying to thread the needle here & not slow things down too fast. Time will tell if they're doing it right, or need to be still more aggressive with clamping down on the inflation. Echoing what I said above, I think they're being a bit timid.

[ua_guy]

Quoted in the NYT today, Jerome Powell said, "We're not trying to have a recession, and we don't think we have to."

[LivingAlmostLarge]

0.75% today yep but the words appear they aren't slowing down this year....

[QuarterMillionMan]

How The U.S. Made Inflation Worse - YouTube
Feds caused this inflation, not COVID which was actually the black swan event (8:25 minute mark). The 3 big Fed mistakes which caused this inflation spike is at the 5:28 mark.

[ua_guy]

Feds caused this inflation, not COVID which was actually the black swan event (8:25 minute mark). The 3 big Fed mistakes which caused this inflation spike is at the 5:28 mark.

QMM, the title of the video is literally, "How the US Made Inflation Worse" and not "The Feds Caused This Inflation". I think your statement is misleading.

The Black Swan events came with their own inflationary pressure, and yes, the Fed reacted by printing money and propping up some of the stock market and a few sectors of the US economy, but I'm not seeing where any of that is causing "10%" inflation (using a round number). Take food and energy out of that, or leave it in. Where are people seeing where Fed policy caused more than about 2.5%?

[QuarterMillionMan]

Ok I'll give you that uaguy but to say COVID caused the inflation is more of a stretch. To me it's a combination of a lot of different factors.

[disneysteve]

Ok I'll give you that uaguy but to say COVID caused the inflation is more of a stretch. To me it's a combination of a lot of different factors.

Didn't we just have this conversation? Maybe it was in another thread.

ETA: It was on the most recent couple of pages here: https://www.savingadvice.com/forums/...etc#post734472