They have tens of knobs, some strange and esoteric, targeting specific corners of the banking system, but I believe if they want to control inflation they simply need to cut back on bond purchases.

As they buy less bonds, their price drops, as the price drops risk-free yields drift higher. As risk-free yields drift higher, consumer credit becomes simultaneously more expensive and less available, as lenders allocate less of their capital to risky lending and more to risk-free (government) lending. This credit shrinkage causes the deflationary effect.

The trouble is that every time the fed has even hinted at this on past occasions (stretching back a decade), an immediate violent market event has usually followed. https://www.investopedia.com/terms/t/taper-tantrum.asp

I'm surprised no one else has mentioned it but I would say a bigger problem is that the stimulus is encouraging people to not work which discourages production of goods/services. A lot of the inflation I've experienced it directly from less people providing goods/services so those who are producing have more pricing power and simply raise their prices. I recently got quotes for some construction work and all of these contractors say they're booked out for MONTHS!

We need to start rolling back on all of the stimulus and COVID rules we've implemented to encourage people to return back to work.

Once this happens, I believe production will increase and inflation will dissipate quicker.

You know what would also increase production and increase labor force participation? Paying workers more.

I wonder if this is what the fed and treasury are really shooting for, trying to push some inflation into worker salaries. If so they may willingly sacrifice some gains in the market.

How do you know it's not that more people have access to cheap loans, more people are wanting construction done?

Because it isn't just happening in the construction industry. There are restaurants in my town offering a $3000 bonus if servers and cooks commit to 4 months of work. They literally cannot open entire sections of their restaurant because they cannot find enough people willing to work. Same thing with the trucking industry, there was a driver shortage before the pandemic, and it has only gotten worse. People are simply not willing to work so long as they are being paid to sit at home.

Interesting that it is so widespread- from my perspective it's great that there people now have leverage in negotiating their wage

To take back the money they would need to sell the assets they bought to inject money into the economy in the first place, then they would need to pretend the money gained in that sale never existed. Usually those assets are bonds so it’s unlikely they can call in those bonds before they are due and hopefully when they are due the bond debtors are able to pay.

The debtor is the government, right? So unless the government collects more taxes, it is probably not able to pay.

The debtor is not always the government. The fed buys bonds in smaller banks, among other assets.

I thought banks don't want anymore money and even charge negative interest when you give them some against their will.

Why would a bank take FED money in?

The same reason any business takes on investment/debt.

They don't call in the bonds. They either hold them to maturity, or sell them in the open market.

They do it basically by raising interest rates -- when the Fed issues new currency they do it by buying bonds (usually Treasuries). When they want to take currency out of circulation, they just sell the bonds. This lowers the price of bonds, which raises interest rates.

> I don't know via which mechanisms they would do this. Does anybody here know?

selling bonds or increasing reserve requirements are two of the fairly straight-forward tools central banks have to reduce money supply.

With "money" I meant FED money. I did not count IOUs from banks as money.

So that leaves us with selling bonds.

As for the IOUs from banks: It is an interesting question how much stocks are bought with that kind of pseudo money. Since banks probably do not give those IOUs to people who want to buy stocks with them, I would think not so much.

The IOUs would have to go through zombie companies which give the IOUs to their employees who then buy stocks with them.

Do you know how much BILLIONS of bonds the FED is DIRECTLY buying? "The Federal Reserve is expected to announce it will begin trimming its $120 billion in monthly asset purchases before the end of the year as the U.S. economy recovers strongly from Covid-19, according to economists surveyed by Bloomberg." https://www.bloomberg.com/news/articles/2021-04-26/fed-to-ta...

It just has to stop buying them, and maybe actually start selling from their giant portfolio...

>With "money" I meant FED money. I did not count IOUs from banks as money.

That's not a reasonable take (in the context of the question). Controlling reserve rates controls the money supply, and the money supply is relevant when it comes to the level of inflation in the economy. What you're referencing is the 'monetary base'. (which is actually only a relatively small fraction of money in circulation).

I have the feeling you did not read my comment in full.

I explained why I think for that for this context the monetary base is the right type of money to look at.

For crypto and stock we do the same. People say Bitcoin is capped at 21 million and stocks in circulation is the amount the companies issued. If someone owes someone else a coin or a share, we do not count that towards the supply.