Re:The Fed has made a historic mistake on inflation
by thephyber on Monday June 13, 2022 @06:17PM
(#31732473)
Traditional economics teaches us what you said, but the low inflation environment from 2009-2019 suggests it’s more complicated. The Fed was struggling to even achieve the target +2.0% inflation rate for that entire decade, even as Congress passed gargantuan spending bills every year.
I tend to agree with your sentiment, but wanted to point out there are obvious issues with our analysis.
True.
> Massive government spending, funded by new money, caused inflation. The Fed can’t do much about that.
False. The Fed controls the money supply - that is, the creation of new money. (Congress doesn't, thank God.) If the Fed didn't increase the money supply, the government would have to borrow more on the open market, or else tax more. The first might cause visible issues earlier; the second would be politically expensive.