The Mainstream Is Increasingly Accepting The Possibility That The Fed Will Blow up The Economy
The comments below are an edited and abridged synopsis of an article by Tyler Durden
A year ago, it was impossible to believe that the Fed would raise interest rates and end stimulus. After 14 years of QE and near-zero rates, it’s not surprising that the Fed would refuse to acknowledge that it would indeed abandon them.
First the Fed refused to admit that inflation was a problem; now we are openly discussing the idea that the Fed will have to blow up the economy in order to stop rising prices.
In the past, the immediate reaction by media pundits would be to suggest that a Fed pivot to stimulus was coming soon. This is no longer suggested, and economists acknowledge that pivot hopes are fading.
The narrative shift is dramatic, as if the media is preparing markets as well as the public for tightening to continue for much longer than initially expected.
Durden discusses the stagflationary avalanche from 1972 to 1980, and the early years of the Great Depression.
The Fed has done this before, and it has no reluctance about engineering a recession—or a depression—in the face of inflation. But none of these measures will create stability, and they may lead to greater instability.
The media either doesn’t understand or doesn’t want to talk about the Fed’s culpability for the existing crisis. For now, it presents inflation as a consumer demand issue, which is a side note to the bigger issue of central bank currency creation. Don’t forget that the Fed dumped over $8 trillion on the economy in the span of two years through Covid stimulus measures, and this is when prices truly skyrocketed.
We have no idea how many more rate hikes it will take to deal with that level of monetary inflation; such a thing has never happened in the US before. With the latest GDP print coming in at 2.6% and CPI prints remaining high, there is no indication that tightening will stop anytime soon. A far-reaching deflationary effort would be required, and this effort could cause the same kind of chaos as inflation.