Everyone expects the Federal Reserve to increase rates next week. The CME Group assigns a probability of 97% that the Fed’s target rate will rise from 3.0-3.25% to 3.75-4.0%. With the Fed hiking for quite some time, and inflation maintaining a 40 year high, at least two things should now be apparent: Raising rates to fight (price) inflation does not work and the Fed will continue raising rates to fight inflation.
Just last week, CNBC wrote:
Philadelphia Federal Reserve President Patrick Harker on Thursday said higher interest rates have done little to keep inflation in check, so more increases will be needed.
Showing not even the slightest reservation with their policy, the Fed President was quotes as saying:
We are going to keep raising rates for a while... Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year.
Incredible really, because so far, rate hiking has done next to nothing to “fight inflation.” Instead of examining their theory, the Fed decided to do more of the same in hopes it will somehow work… eventually.
According to our planners, prices have increased due to COVID, Putin, and anything else except the Fed’s $5 trillion monetary inflation. Their solution to lowering prices is to raise interest rates. While this has not worked so far; if rates reach above 4% by the end of the year, the prediction is that it will.
It’s comical but this is basically the narrative we’re told. There’s even more to the story:
The expectation is that the Federal Open Market Committee, of which Harker is a nonvoting member this year, will then take rates a bit higher in 2023 before settling in a range around 4.5%-4.75%.
And so, he claims:
At that point, I think we should hold at a restrictive rate for a while to let monetary policy do its work.
To recap: The Fed will stop raising rates sometime next year when rates are close to 5%. At this time, something will happen, and prices will go back down again. Or if they don’t want to call it deflation, the hope is that the CPI and other inflation calculators show a mere 2% inflation for the foreseeable future.
How or why any of this would be the case has never been explained by the most highly paid and decorated economists of our time. Nor has it been explained why raising rates to fight inflation will work in 2023 when it hasn’t worked in 2022. We must assume that on some level, everyone, including members of the Fed, know that inflation cannot be controlled like a water faucet. Surely, those in the Fed’s inner circle know their quantitative models are inherently flawed. For everyone outside the Fed, we must continue to take stock that whatever the Fed is doing, it’s economics in name only. Never forget what they’ve done to our money, our economy, and our future.
Barring any stock market catastrophe, rates will rise next week. If that doesn’t solve our inflation problem, expect rates to rise again. Of course, they cannot raise indefinitely because amongst other things, the world is drowning in debt. The rate cut will come eventually, irrespective of any inflation reading.
