Re “Powell says ‘no decision’ on the Fed’s next move on rates” (March 8): The Federal Reserve has complex justifications for its rate hikes, but some basic facts and logic raise questions. Inflation is a supply-demand matter, and evidence points to supply and not demand as a major factor.
Take the basics, for example: eggs, milk, flour/baked goods and pork. There are supply issues here like bird flu, fertilizer shortages and thinned livestock herds. Global supplies, including oil, grain and steel, continue to be impacted by the war in Ukraine and relations with China.
According to Mark Zandi, chief economist for Moody’s Analytics, it’s the upper half of the income distribution that is spending, unfazed by inflation. The lower half has run through savings, including stimulus money. The important questions are: What are more interest hikes going to achieve, other than pain for the lower incomes? And what are hikes aimed at too much demand going to accomplish when it’s a supply issue?
Finally I understand economics. The Fed said that to quell inflation it is necessary to have fewer job openings and more layoffs. Of course, if people only have a little money, they will only buy products that are cheap. Businesses will have to sell at cost or below just to pay their distributors, so they won’t be buying more. Wait, then that makes a supply and demand situation.
That usually causes prices to rise. I guess I really don’t understand economics after all.
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