Recessions are the only sure cure for inflation, Fed faces fury
, which happens when low interest rates drive up the value of homes, stocks, bonds and commodities. Many asset values today are based on the expectation that interest rates will remain low, thereby creating a potential bubble.
If interest rates rise too fast, and the world’s financial whizzes decide that assets prices are too high, well, that’s what happened in 2007’s Great Financial Crisis.Neither Powell, Congress, nor President Joe Biden can take the money back from consumers or speed up production at factories. They hoped companies would restart faster, so they declared the early inflation transitory. That was wishful thinking., a significant bounce-back from December.
The buying spree will therefore continue, at least until prices rise so high that consumers decide it’s not worth it. But we don’t appear anywhere near that point. Despite massive inflation in home prices, sales were upThe Fed will soon raise rates and sell bonds to slow the economy, but historically, those are sledgehammers where scalpels are needed. The only question now is how long the next recession will last.
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