by BoatSurfer600
Because that’s what happened in 2008. However markets went into meltdown which caused inflation to collapse. It’s also what happened to Volcker in 1980 and he was forced to raise rates later in the year
THIS balance sheet is the epicenter of the Fed’s policy error dating from 2020 to now. It increased 100% during the pandemic and it has only come down 5% since the Fed started tightening. It is the SOLE source of monetary inflation
Wolf Richter: The Fed’s Interest Rates Are still Fueling Inflation rather than Dousing it
The Fed has now raised its policy rates by 500 basis points in a little over a year, with the top of the range now at 5.25%, and with the Effective Federal Funds Rate at 5.08%. But “core” CPI, which excludes the volatile food and energy components, has gotten stuck at around 5.5% to 5.7% for the fifth month in a row. There wasn’t any progress at all with core CPI in five months. Inflation intensity is simply shifting from one category to another. As inflation temporarily subsides in one category, it resurges in another.
The Fed’s short-term policy rate, as measured by the Effective Federal Funds Rate (purple), is still below inflation, as measured by core CPI (red):
With core CPI at 5.52% in April, the “real” Effective Federal Funds Rate (EFFR minus core CPI) is still a negative 0.44%. And negative real policy rates are still a form of interest rate repression, and are still stimulative of the economy and of inflation.
And so core CPI got stuck at 5.5% to 5.7%, and isn’t making any efforts to be heading toward 2% or whatever, and instead, everyone has gotten used to this inflation and accepts it, and deals with it, and builds it into economic decisions, which is nurturing this inflation right along.
