The Fed is waging war on inflation, a war very likely to create a recession, along with plunging values for stocks and bonds.
Anyone familiar with Econ 101 knows that prices are set by supply and demand. For lower prices, we need some combination of lesser demand and/or greater supply. A generally accepted explanation for the cause of inflation is “too many dollars chasing too few goods”.
What’s going on? First, the Fed is dampening demand through raising interest rates and other tightening procedures. Second, the Democrat-controlled Congress continues to flood more dollars into the economy; an example is the mis-named “Inflation Reduction Act.”
And further, current administration policies are directed toward suppressing supply, rather than promoting growth strategies that would increase goods and services, especially domestic fossil fuels.
So the Fed is depressing demand, but Washington is distributing more dollars and suppressing the supply of products, including energy. This combination of contradictory policies means interest rates will have to be higher than would otherwise be required. Thus demand will be depressed further than would otherwise be necessary — i.e. a recession.
So next time you cringe at the prices you face at the grocery store or at the gas pump, or check the value of your 401k account, think about these current government policies, which are being deliberately targeted to create the results we are seeing every day.
Perhaps we need to change our policy makers.
Larry Edwards
Santa Ynez
