> In my personal view, it would be stupid to hike to 10% since that will also cut off the needed supply response: this will decapitate energy, farm, and housing expansion while at the same time decimating all forms of wealth. But there is a possibility depending on how trigger happy the fed becomes.

The only reason Volcker managed to bring down inflation is because he was willing to actually do what needed to be done. If borrowing money is cheaper than inflation, why would anybody not just continue to borrow money indefinitely? The Federal Reserve can fight inflation or it can fight a recession; it cannot do both simultaneously.

You have to decide which is a bigger problem: a recession, or inflation. The notion that you can walk a tight rope between the two is disconnected from reality. And while you continue to make inflation worse, you only make the inevitable recession worse. Tick tock.

> You need complete despair.

I agree. We are fucked.

Lots of assumption buried in your comment/worldview about what's actually causing inflation. Is it actually just a slow accretion of growing costs for resources, distribution? Is it companies deciding that now would be a great time to increase prices "because inflation" and thus get ahead of the nascent wage growth that was threatening to take off post-pandemic? Clearly it's a mixture of the two but the implications are completely different if its 90/10 vs 10/90.

Honestly, that's really not that important for what I was saying, because we're talking about the Fed. The Federal Reserve can choose to fight inflation or it can choose to inflate assets, and that lies on a spectrum. The "why" of inflation isn't nearly as important as the severity of it. If inflation is at 10% you're not going to debate it before doing something about it - that just allows the situation to fester instead of taking initiative. The reason we're in this situation where inflation is still getting worse, a year after being told not to worry about it, is because it's politically untenable to actually try to fix the problem. Meanwhile inflation continues to worsen while we make symbolic gestures about fighting it.

Yes, understanding what's causing inflation matters. I'm not saying it doesn't. But when you have a crisis, you want to focus on mitigation first and then root causing it after the situation is averted.

Also you mention two possible causes of inflation. Limited resources and distribution, and companies deciding to raise prices because they can. What about the Fed printing money like crazy, flooding the M2 money supply? That's the one that's relevant to this conversation.

The Fed can't do much at all to stop corporate-controlled price increases. Increasing interest rates makes it more expensive to borrow money, but that has little impact on a company choosing to bump its retail prices by 25%.

M2 is only relevant to a point. The increase in the money supply does not, in and of itself, cause any change in prices at all. Individuals and corporations have to make explicit decisions to respond to what they can see of the M2 effect, and none of these decisions are a law of nature. Rents don't have to go up just because M2 grew. Landlords sense that they can, and then they choose to do so. They could choose not to do so, too, but they don't because we're taught that this would be irrational, or something.

> Individuals and corporations have to make explicit decisions to respond to what they can see of the M2 effect, and none of these decisions are a law of nature.

The law is called supply and demand. If there are more dollars and the same amount of resources, the value of a dollar goes down.

Let's just agree to disagree. Cheers.

I'm certainly not going to argue about such a simplistic model of human economic behavior.

Inflation is still going up because there’s a war between Ukraine and Russia. This has caused food and energy prices to skyrocket. The Fed can raise rates to 69% but it’s still not going to cause (say) the grain in Odessa to make its way to people’s stomachs.

Is a certain amount of rate increase justified? Yes, you don’t want an inflation spiral to develop. Beyond that, we are going to have to live with a certain amount of inflation until the situation in Eastern Europe normalizes and the supply chains normalize after COVID. And the interest rates should be kept on the lower side so that companies can still finance solutions to this mess.

If it was just one item you would expect that consumers would cut back elsewhere. Instead we see that they can demand more wages, and companies can demand higher prices even if they are decoupled from wheat.

The latter is only possible if there is too much money in the system, the signal about wheat production gets lost. As the feds money printer doesn’t work evenly, those who are closer to it get more money. I can only speculate that eventually, like any corruption, the effect is to diminish productivity in the real economy in favor of a special class.

> Instead we see that they can demand more wages [ ... ] The latter is only possible if there is too much money in the system,

When your employee is making gigantic profits, asking for more in wages has no relationship to the money supply.

> ...until the situation in Eastern Europe normalizes and the supply chains normalize after COVID.

They won't "normalize" though (imho), as the reason is not really COVID anymore, it is China gaining ground and trying to do as much damage to the western economy as possible.

Very low interest rates and high asset prices indicate that 2020s can be another lost decade for investing that follows the great decade of 2010s. 2000s was also a lost decade, and unfortunate thing about it was that even if you managed to time the bear market perfectly and entered at the very low in 2002, the decade would still be lost to you, because the market in 2009 was below 2002 lows.

While many do not believe it's true, timing the market is possible and its a skill. *Find good active managers that have a track record of positive returns and low losses.*

While they did not beat the index in the last decade, I'm fairly certain they will going forward or more importantly minimize the drawdowns.