Fed Chairman Powell Wants Higher Unemployment to Stop Inflation

Twitter Thread: 

1. Consumer Price Index is 9.1%. year over year. The Fed’s solution is to raise interest rates, killing the economy to bring down. A thread about establishment logic.  #CPI 9.1%

2. Fed Chair Powell wants to raise unemployment and lower wages to fight inflation. Recession risk is a lower priority. https://www.marketplace.org/2022/05/12/fed-chair-jerome-powell-controlling-inflation-will-include-some-pain/  

3. But, many sectors of the economy are not interest-rate sensitive. Interest rates are a blunt tool for managing inflation. https://www.federalreserve.gov/econres/feds/why-isn39t-investment-more-sensitive-to-interest-rates-evidence-from-surveys.htm  

4. To affect the economy, the Fed will have to move interest rates drastically to crash a big enough market, like housing, so contagion spreads. 

5. If builders start layoffs, workers buy less. With fewer customers, unrelated businesses will have to lay off their workers and cut prices, too.  

6. In capitalism everyone’s spending is someone else’s income. Our government’s plan is to create a deflationary spiral. Inflation defeated! 

7. Unfortunately, interest rate changes are the only politically viable solution when your constituents are billionaires and corporations.   

8. Also, rate hikes increase payments to gov’t bondholders. YTD cost is >$300 billion. That new money creation is likely to increase wealth disparity.

9. Better solutions would focus on government investment to supply scarce resources and taming monopolistic pricing by corporations.  

10. Smart gov’t spending would seek to increase productive capacity, where $1 invested returns $2 worth of stuff. This is taken for granted in business but not in government spending.