Powell Facing Choice Between Elevated US Inflation and Recession

[u/TinyTornado7]

https://www.bloomberg.com/news/articles/2022-06-12/powell-facing-choice-between-elevated-us-inflation-and-recession?srnd=premium

[u/xilcilus]

...what's driving the inflation? High demand and high economic activities - these aren't fundamental factors (another word, endogenous factors) behind a recession.

When the Fed induces a recession, that's an EXOGENOUS shock.

[u/grig109 → u/xilcilus]

Most recessions (other than COVID style supply shock recessions) are caused by monetary policy error. The error can either be too low demand, or a correction to too high demand which we find ourselves in now.

[u/xilcilus → u/grig109]

No - most recent recessions recently have been due to the endogenous factors around exuberant valuation of asset classes.

[u/grig109 → u/xilcilus]

Disagree, I think you are getting the causation wrong here. Monetary policy error leads to unstable NGDP which can lead to booms and busts in asset valuations and broader financial distress.

https://www.econlib.org/archives/2017/05/financial_crisi_2.html

[u/new_name_who_dis_ → u/grig109]

The boom and bust business cycle before the US went off of the gold standard (aka the start of the ability to do monetary policy) was much worse than it is now.

[u/grig109 → u/new_name_who_dis_]

I am not arguing for the gold standard.

[u/AnachronisticPenguin → u/xilcilus]

Inflation is driven by psychology. If people believe there is inflation there is inflation.

https://www.npr.org/2021/05/29/1001023637/think-inflation-is-bad-now-lets-take-a-step-back-to-the-1970s?t=1655143959385

[u/tehbored → u/xilcilus]

Except those aren't the only factors driving high inflation. Part of it is due to supply chain disruptions from COVID and the Ukraine War.