Regarding inflation, I think you need to view the Fed as an asset manager that was a little late to the game.
A great deal of money was pumped into the economy during the pandemic, and when that money started to dry up, consumers continued spending. We have seen, and continue to see, personal savings decrease while consumer credit balances increase and delinquencies on personal credit have increased as well.
In other words, people were spending at the same rate, but the spending was savings and credit-based.
As a result, when the stimulus money ran out, inflation didn’t self-correct. At some point, overall spending will decrease, which in turn will ease inflation.
I think an interest rate increase earlier in the game would have prevented prices from rising as quickly and to the extent they did. Had the Fed made the decision to raise interest rates earlier, they would not have needed to raise interest rates as aggressively as they did.
Raising rates as quickly as they did softened both the real estate and labor markets. Now, we’re in a holding pattern to see what impact the Fed's recent 50 basis point rate cut will have.
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