Commenting last week, Federal Reserve Chairman Jerome Powell indicated that in the inflation fight presently being waged by the Fed, there would be “pain.” Such an assertion, or observation, or excuse is foolish (and wrongheaded) on too many levels to count. What makes it sad is the consensus from Left and Right about the alleged truth of Powell’s comments. The Paul Volcker myth just won’t die.
Powell’s inflation solution, one embraced by both sides, is to raise interest rates. It raises an innocent question: what about the Fed raising the short rate for credit it aims to influence would shrink inflation? If your answer is that the rate hike would raise the cost of borrowing and reduce lending, please go back to school. Or better yet, don’t return to school where they teach the fiction that the U.S. economy, or any economy for that matter, is a walled off island of autarkic economic activity. Also, throw out your economics textbooks that you paid way too much for in school.
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