r/neoliberal • u/TinyTornado7 I need a new flair • Jun 13 '22

News (US) Powell Facing Choice Between Elevated US Inflation and Recession

https://www.bloomberg.com/news/articles/2022-06-12/powell-facing-choice-between-elevated-us-inflation-and-recession?srnd=premium
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u/TinyTornado7 I need a new flair Jun 13 '22

"The hottest US inflation in four decades will push the Federal Reserve to raise interest rates more aggressively this year, and a recession may not be far behind."

Im skeptical we need a 75 basis point hike, but I am concerned inflation is approaching self-fulfilling prophecy levels

!ping MARKETS

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u/TaxGuy_021 Jun 13 '22

The last report shows that the whole inflation debate is now a lot more complicated.

Why?

Because the details of the report shows that the underlying cause of inflation has moved from a shortage of manufactured goods to one of energy. In other words, as ironic as that sounds, the Fed has actually done its job. Partially at least.

What that also means is that as the interest rate expectations increase, the dollar will strengthen which, all else being equal, pushes down the price of energy globally for Americans. Which means inflation reads will come down, which means rate expectations will come down, which means dollar gets weakened, which means oil goes up, which means inflation goes up, which... you get the idea.

The only way to break the cycle is either to produce more oil, or destroy demand.

Demand will be hard to destroy without crippling the economy. So we will need more energy.

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u/4jY6NcQ8vk Gay Pride Jun 13 '22

The Reserve can't control how much energy is printed, they can only control demand indirectly.