The Fed Wasn’t Responsible For Surge In Inflation, But Is Likely To Create Recession

  • No matter how extravagant monetary policy is, as long as it doesn’t produce a credit boom, it doesn’t increase the money supply and hence inflationary pressures except in asset prices.
  • Fiscal policy becomes very powerful at very low interest rates and can produce more useful economic outcomes than rising asset prices as the pandemic relief demonstrated.
  • However, the pandemic stimulus was a one-off and fiscal policy is already contractionary, so it’s not the main driver of the present inflationary climate.
  • Supply chain issues have been enduring and even worsened, and central banks are ill-equipped to deal with these, rising the risk they’ll overshoot with monetary tightening.
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Fed Not Responsible For Inflation, But Is Likely To Create Recession | Seeking Alpha