When inflation was around 18 percent, Paul Volker raised interest rates which then led to a lot of job losses.
So in 1980, he caved.
And inflation came roaring back.
Volker than had to raise interest rates again and stick to his guns. The US went into a recession, but when we came out of it the American economy took off bigly.
Powell needs to stick to his guns.
There is a very good chance of a recession. The yield curve is inverted. That's been a very reliable indicator of a pending recession.
Powell announced a very strange metric he is using to determine when he will throttle back on interest rates:
https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20220921.pdf
You want to be at a place where real rates are positive across the entire yield curve.
Since 2007, the Federal Reserve balance sheet has gone from around $870 billion to about $9 trillion.
That's a fuck ton of excess cash chasing too few goods.
The only way to lower inflation is to burn all that excess cash. And that's going to hurt. A lot.
Years ago, I called this massive expansion the Fed's Bond Bubble Doomsday Machine.
That bubble is finally starting to pop.
