The economists who get paid to know better are finally realizing what has been obvious for some time: the Fed’s interest rate hikes are not having the desired effect.
“Raising interest rates isn’t working, and the Fed’s overly aggressive actions are shoving our economy to the brink of a devastating recession,” said Rakeen Mabud, chief economist at the progressive Groundwork Collaborative think tank. “Supply chain bottlenecks, a volatile global energy market and rampant corporate profiteering can’t be solved by additional rate hikes.”
While accusations of “corporate profiteering” is pure horse hockey—profit is the name of the corporate game—the idea that interest rate hikes do nothing to address supply side issues is spot on. Most if not all of the inflation we are seeing today is a reflection of exogenous supply shocks coming as the aftereffects of the COVID-19 lunatic lockdowns.
Moreover, it is undeniably obvious that interest rates are not moving above inflation, which was a signal attribute of the Volcker rate hikes in the 1980s.
Now if only the Federal Reserve can catch a clue and craft a new strategy on inflation.