The Fed doesn't control inflation, and it's even questionable whether rates are the best way to mitigate it.

That take requires significant citation. A century of work says you’re wrong, and 3 years of attempting MMT has showed that’s wrong as well.

The last 3 years is proof that we haven't been attempting MMT. MMT says that taxes should rise when inflation is up.

> MMT says that taxes should rise when inflation is up

Keynes said that. In theory, fiscal policy alone can keep an economy balanced. In practice, you need an independent central bank.

MMT's novel assertion is that government debt is a monetary, not fiscal, exertion. (It also asserts raising rates is stimulative, et cetera.) It's broadly criticized and empirically unsubstantiated.

> It also asserts raising rates is stimulative, et cetera.

Can you cite that? That's very odd, and contradictory to the MMT works I've read.

Interest on treasury bonds or federal reserve accounts can only come from new money. The Fed has no power to do anything but create money or sell money created by the treasury. All roads lead to the money printer.

1. When central banks raise interest rates, this means governments spend more on their interest payments. This translates into increased income for bondholders. Higher incomes lead to more consumer demand, pushing up prices. Similarly, banks benefit from higher interest payments from the Federal Reserve. In other words, the interest from the higher interest rates goes to someone in the economy, and their demand increases rather than decreasing.

2. Interest rates are a cost for businesses. When central banks raise interest rates, businesses pass this new cost on to consumers in the form of higher prices, which is inflation by definition.

3. Higher interest rates make it harder to start a business and harder to hold inventory. This reduces supply, leading to higher prices aka inflation.

4. Finally, MMT economists point to the fact that there is no empirical research at all showing that higher interest rates decrease inflation. In fact, the correlation runs in the opposite direction.

The above points are taken from Additionally, the following points are taken made here https://www.reddit.com/r/mmt_economics/comments/wchq55/raisi...

Straight from Wikipedia [1].

A few coastal politicians saw MMT supports deficits, ignored the intellectual bankruptcy within, and turned it into a polarising topic when it’s just an interesting but impractical way of reframing common topics.

[1] https://en.m.wikipedia.org/wiki/Modern_Monetary_Theory

Wow, Kelton did really say that. I never did finish reading her book, I found it much less convincing than Mosler's or Mitchell's. Many MMT'ers consider themselves to be the true heirs of Keynes, so embracing things that so directly contradict Keynes...

Like any field, there are different sides to it. Krugman and Cowell are both mainstream economists, but they disagree on a lot.

You don't need mmt understand why taxes should rise.

The user may be referencing work done on global and domestic demographics (aging populations in china and at home) and supply chain challenges highlighted by the Ukraine issues, since Ukraine is home to critical manufacturing inputs for farming + Russian exports going offline (fertilizers and oil). Ukraine won’t come online any time soon to its previous capacity and the replacement for it isn’t known yet. The story on Russia is that it is being cut off completely from the west.

The work on demographics is done by Pradhan and Goodhart and of course Peter Zeihan likes to discuss the latter as well. I don’t know where Zeihan gets his sources but he consults for the military and other government agencies.

In any case, I’d like to see asset markets deflate courtesy of the Fed raising rates, so I would agree with your take on the Fed holding more responsibility.

First, it's self-evident that no one controls inflation, so I'll assume you're talking about the rest.

Rate rises are being justified to "loosen the labour market" aka drive unemployment higher, and to suppress wages. Except labour costs are NOT the main driver of recent inflation:

https://www.epi.org/blog/corporate-profits-have-contributed-...

So if employment and high wages aren't driving inflation, then suppressing them will only eventually, indirectly drive down demand to the point where corporations can no longer justify their profiteering.

> Except labour costs are NOT the main driver of recent inflation

Wages drive spending and aggregate demand.

We know that tax cuts for the rich don't do it, if you want to juice aggregate demand give everyone a $500 tax rebate.

If everyone is employed and their wages are climbing they go out and buy things.

> indirectly drive down demand to the point where corporations can no longer justify their profiteering.

If you cut those wages that means that means that less is getting bought which means that corporations start to look at warehouses full of flat panel TVs or whatever that aren't moving fast enough, and they start to price them lower in order to move them. The corporation that sticks to their pricing model becomes the one left holding the bag with all the inventory that isn't moving.

Dunno why you'd describe that as only "indirectly" affecting prices since that is directly addressing the supply and demand curve that sets the prices of the goods. The company will always try to take any profits it can.

Rent increases drove inflation

> Dunno why you'd describe that as only "indirectly" affecting prices since that is directly addressing the supply and demand curve that sets the prices of the goods. The company will always try to take any profits it can.

It's an interesting double standard that you seem perfectly willing to tolerate this greedy behaviour from corporations, but not when it's individual people getting better wages and being employed. Here's a thought: instead of capping employment and driving down wages, why not cap profits and so drive down incentives to take any profits they can?

Also, in case it isn't clear, rate hikes are indirect pressure on inflation exactly because they don't directly suppress wages in the way you describe. Instead they tighten credit, which reduces how many people can be employed, which gives employers more bargaining power which only then, eventually, ostensibly, suppresses wages. That's a pretty indirect chain of events, as I said. Per the link I cited, since wages aren't the main driver of inflation here, this arguably isn't even the best way to tackle this type of inflation. We need different tools, but the elite neoliberal class only has a "labour must sacrifice" sledgehammer, so they can't see any other possible options.

Primarily rate increases don't even correlate with less borrowing (meaning less credit) so how can they correlate with something ten steps down the line, being inflation?!

Nobody can possibly "control" inflation. They do have the single biggest mitigating tool and, more importantly, operate largely independent of political influence and election cycles. The result is a swirl of media attention. Congress could fix inflation, but getting them to do it is such a slow and uphill battle, that nobody bothers asking them. During the 2007 crisis, every time Congress dragged Ben Bernanke in to testify he spent most of time begging Congress to take action because the Fed was nearly powerless. But berating him is a lot easier than writing bills.

Isn't it interesting that the biggest mitigating tool is "loosening the labour market", which is thinly veiled code for "make people unemployed so we can pay them less", despite the fact that corporate profiteering and not wages are behind most of the recent inflation:

https://www.epi.org/blog/corporate-profits-have-contributed-...

Maybe claw back the money supply from corporations instead of the labour market. If instead of having only one tool, they also had this complementary tool, maybe we'd see better policies.

All things the Fed has zero authority over. That article says it has policy suggestions and then has a single half-baked thought at the end over what that policy might actually be. Right now, unemployment remains rock bottom. Fed policy is to raise rates until inflation comes down with as little impact on unemployment as possible. That's exactly what they're doing. Idk what else you expect them to do. Cut rates? Like they've been doing in Turkey?

I'm not interested in standard Fed policy, I'm interested in better solutions that don't punish the labour market to prop up capital.

What action did he want them to take?

Raise taxes and build more housing

You want the govt to build housing?

US will not go back to price controls. That would make sense, but can you imagine the cries of socialism?

So increase corporate taxes, even up to capping profits. That's effectively what raising rates does to employment and wages. Capital has had all the control for too long.

> Inflation is not done.

Inflation is never going to be done without some kind of structural change to how we govern ourselves. It’s the only politically acceptable out to deal with massive over spending by the federal government. There’s no political will to raise taxes to cover desired spending, and no political will to lower spending to match taxes. So the only answer is for the debt itself to be devalued.

> Inflation is never going to be done without some kind of structural change to how we govern ourselves.

I think the reference was to “above target” inflation, not “above 0 inflation”.

Yes, as long as we have policy based on the experience that slight deflation is worse than slight inflation, we will have a structural bias toward slight inflation.

Slight inflation is not going to cut it to balance the federal budget.

Why would anyone care about balancing the budget?

To the extent that debt (or debt-service cost) to GDP matters, balancing the budget is way outside of what is needed to address it. The concerns are, in the short-term, ability to pay debt service out of current revenue, and, in the longer term, assuring the GDP grows faster than debt. Neither of those requires balancing the budget.

I think OP is suggesting that inflation is a product of the introduction of additional dollars to the system, which are mainly added thanks to the government's imbalanced budget (which dwarfs the effects of bank lending on money creation). This is a probably-not-too-wrong but also extremely contentious theory about how the economy works. Most of the people who run the fed and the treasury today subscribe to the idea of modern monetary theory, which does not agree. It's looking more correct now than it has ever looked in the past, though.

> The concerns are, in the short-term, ability to pay debt service out of current revenue, and, in the longer term, assuring the GDP grows faster than debt. Neither of those requires balancing the budget.

I agree. I don’t mean balancing the budget in an accounting sense. I mean getting spending down to sustainable levels. It just isn’t sustainable right now, and the only two possibilities I see is to either get that under control or to buy government debt with “printed” money, causing inflation which will decrease the real value of the debt.

Seeing the flagrant incompetency and immaturity in Congress, I’m betting on the latter.

Even a competent and mature Congress would find it challenging to dramatically cut the budget. The entitlements programs are crucial to keeping people out of poverty.

The next biggest item is the defense budget, and I suppose a "competent and mature Congress" would be able to cut that dramatically, but it's a challenging task. People genuinely believe that our enormous defense budget is required.

The rest of the budget is a lot of little things, each one barely more than a rounding error. You could zero out whole departments without moving the needle. People talk about them because of culture warfare, with "teh deficit" as a fig leaf.

In the end, the US budget is so big because we want it to be so big. And that's not inherently a bad thing. It is part of an economy doing well enough that people believe the government will repay loans. Eventually we'll outstrip that, but it's not today.

The fact that Congress is immature and incompetent... that's kind of a different problem. And one much more important than the deficit. But I don't have any idea how to fix that, because the voters know what they want and deserve to get it, good and hard.

I mean, inflation won't literally be done because the Fed targets some inflation. And iiuc it's for the best in the grand scheme of things.