[RspecMAuthortah]

I am baffled at the Fed messaging. A year ago Powell's keynote said the inflation is a supply side problem due to "transitory" issues. How does raising interest rates with "demand destruction" help supply side inflation due to war and chip shortages?

[staticman2]

A simple example: If your mortgage or credit cards debt or car loans cost more due to higher interest rates, you are going to have less money left over to purchase other products.

This will make you less likely to want the new expensive Iphone, especially if you were going to finance the purchase, so as Iphone sales plumit, there will be less of a chip shortage since supply now meets demand.

[RspecMAuthortah]

OK so what happens if the chip shortage lasts longer (due to war and commodity prices)and with plummeting sales and corporate earning (which will reduce tax receipts as well) the economy will enter recession? So then what is the game? Do Fed keep the economy in recession? Or do they start QE again?

[treis]

Rate cuts don't just hit demand. They hit supply too and probably harder than they hit demand.

[ARandomerDude]

Alternative: I now don't think a new house and car are worth it, so I have more money for things like iPhones, making the chip shortage worse.

[spaetzleesser]

" A year ago Powell's keynote said the inflation is a supply side problem due to "transitory" issues."

This reminds me a lot of the 2008 crisis when Bernanke told us that everything was just fine until banks started collapsing. Personally I think the Fed has turned into a political institution that keeps inflating bubbles until there is no way out. I can't see much wisdom or foresight in their moves. They seem constantly behind the curve and instead of smoothing out business cycles they make them more extreme.

[Loughla]

I want someone to prove you wrong, because I am right there with you. It seems like the swings just get wilder and wilder, and no one is at the helm.

Please someone tell me why this is incorrect.

[randomdata]

It was believed that supply would return. It hasn't. Destroying demand means that you don't need supply to return.

[skohan]

Well they may have believed (or hoped) at the time that inflation was transitory, and are now worried that it's more of a wage/price spiral.

[cronix]

That's kind of laughable. Most people who know the very basics of economics knew this was coming after printing and dumping that much money into the economy early in the pandemic. They increased the supply of money with nothing of value backing it, which diluted the total supply's value.

[User23]

Fortunately, we can rely on continued immigration to increase the labor supply and control wage inflation and that's a good thing. The price spiral with flat wages will result in a generally reduced quality of life for the American worker though. I think that's a bad thing, but nobody in power has cared about that for the past fifty years[1] so why start now?

[1] https://economics.stackexchange.com/questions/15558/producti...

[NotYourLawyer]

Spoiler alert, the “transitory” stuff was always bullshit and everyone knew it.

[queuebert]

The inflation isn't due to war and chip shortages.

[themitigating]

Care to elaborate and provide evidence?