Food prices are inflating, so if we get enough people unable to afford food, prices go down.
“Victory”
I think you can apportion blame for stuff like that. And the guilty are insulated from the consequences of their actions, so I don’t agree they share in the pain.
The fed isn't doing this because they want cheaper shit from china. They're doing it to keep inflation under control. A result of making money more expensive is lower shipping container rates, but that's not the primary goal. Do you have any better ideas for stopping inflation?
Increasing the cost of borrowing decreases economic activity by essentially making everything more expensive on credit. Many businesses use credit facilities to finance ongoing operations throughout the year and their ability to afford to operate their business will go down, requiring them to employ less and attempt less business. This reduces inflation by pulling capital back from growth and investment as well as into savings facilities. But the other side is it induces a recession, increases unemployment, and decreases wages. This is worse than inflation IMO - if you make less money how is that different than things costing more? The supply of money might change the nominal price of something and hurts fixed income folks, but as wages are elastic as well as prices unless inflation is coupled with decreased wages and employment whats the relative difference? Further consumption based economies burn money supply down quickly if the economy is able to meet demand.
By reducing the cost of shipping and improving shipping capacities any excess cash would be consumed by having supply meet demand. That can be achieved by lowering interest rates which stimulates capital investment in supply side expansion and facilitated demand by lowering the marginal cost of credit facilities.
Easier said than done. How do you do this without driving more inflation in the meantime? If supply chains are constrained, deploying a bunch of oil drilling equipment is going to make it worse.
>This is worse than inflation IMO - if you make less money how is that different than things costing more?
What's bad about inflation goes beyond just "inflation was 10% so people are 10% poorer". Inflation hinders trade and financing (why would you sign a 5 year contract when you don't know what prices will be in 5 years?), discourages saving/investment, and adds inefficiencies throughout the economy as everything has to be constantly repriced. Also, failing to contain inflation when there's an expectation of a certain inflation rate leads to higher borrowing costs (for both private and public lenders), because lenders don't want to be wiped out by inflation.
>That can be achieved by lowering interest rates which stimulates capital investment in supply side expansion and facilitated demand by lowering the marginal cost of credit facilities.
That's absolutely bonkers. There's already too much dollars chasing too few goods, and your solution is to unleash even more dollars?
Not only be concerned with it when it begins to impact wages.
https://www.wsj.com/articles/transcript-fed-chief-powells-po...
Had a decade of asset inflation, that was fine. A quarter or two of wage inflation and everyone loses their minds.
Note I’m not saying don’t deal with inflation. I’m saying inflation is caused by bottlenecks in supply meeting demand. Stimulus increased demand, and that increased demand can be met by suppliers but the cost of shipping in all dimensions is very high historically. Removing bottlenecks and expanding economic throughput also solves the inflation we see without everyone being miserable.
Obviously the Fed can go overboard. But the economy is no longer based on fundamentals and an inflationary spiral would be a major problem. I can't blame the fed for taking the action they are.
