The Fed is attempting to slow inflation by raising interest rates. The strategy here is to kill demand aka slow the economy. While this may be deflationary in the short term, it actually makes inflation much worse and is a “kick the can down the road” strategy.

Attempting to weaken the economy is never a productive strategy. What is causing the inflation we have experienced for many decades now is growth in the money supply. In order for government to kill inflation they must kill the increasing money supply not demand.

The correct way to fight inflation is to stop going into perpetual deficits (spending more than you make). The growth in debt is what has caused inflation. The more debt that a government has, the more money needs to be injected into the economy to service the debt.

By raising interest rates in a high debt environment, the government is creating more expensive debt they will need to pay off in the future and they are also killing their revenue. If there is less economic growth, then there are less tax receipts. This means the government is making less and spending more, aka wider deficits.

Don’t kill economic demand, kill the increasing supply of money.

#inflation #supply #demand