[late]

I've been arguing for modest interest rate hikes for some time. Here's another:

"A recent US Federal Reserve staff working paper written by David Ratner and Jae Sim (2022) has captured widespread attention, especially among economists, who, like ourselves, believe that a repeat of the anti-inflation policy scenario of the early 1980s of sharply raising central bank interest rates might prove inappropriate, if not catastrophic, as solution to dealing with the current inflationary environment.

Indeed, not only might the inflation rate be quite insensitive to falling aggregate demand pressures, but sharp and persistent increases in interest rates could devastate many poor working households which would face the specter of increasing unemployment. This concern is amplified by the fact that, unlike the situation in the early 1980s, these poor households now tend also to be very heavily indebted as a proportion of their personal disposable incomes and may face even greater risk of insolvency both because of higher interest rates and because of the increasing unemployment (see Costantini and Seccareccia, 2020).


The important implication is that, as Yellen (2019) recognized, the flatness of the relation implies an immensely high sacrifice ratio if pursuing a Volcker-style strategy (as recommended by Stanbury and Summers 2020), since it would require excessively high unemployment to get the inflation rate down by even a very small increment.

However, evidence-based economics would suggest that the well-worn relation between unemployment and inflation does not actually exist, at least not in the form it is traditionally depicted by the mainstream.

The US Fed working paper on Kalecki’s economics, dated September 2021, but which appeared only recently, is a breath of fresh air. Ratner and Sim (2022) claim that the Phillips curve in the United States and the United Kingdom has been almost flat since the 1980s because of the significant erosion of the bargaining power of workers.

Rentier interests have played an important role in what occurred historically. Owing to the growing importance of the financial sector, we have seen how the rentier perspective hijacked monetary policy through the adoption and framing of inflation-targeting monetary policy regimes since the last major inflation of the 1970s and 1980s. In fact, much of the current political pressure to revive the “inflation first” monetary policy commitment through some formal adoption of an official Taylor rule reaction function in the United States is part of this rentier revival in the macroeconomic policy agenda that waned after the financial crisis."

You know how I keep banging on about income inequality? That's what this is really about, the rich hijacking the economy..


https://www.ineteconomics.org/perspecti ... es-kalecki

[Steve_American]

The MMT founder, Prof. Bill Mitchell, has said that the Fed ignores the fact that interest costs are also a cost for businesses. That such businesses will pass their higher interest costs on to their customers as higher prices, and this will make inflation be higher. So, not only will raising interest rates not reduce prices much, it will increases some prices.

Late, inequality should also be seen in who it is that is made to suffer to achieve some Gov. goal. In this case, keeping the rich from making excessive profits is totally off the table, while making 10% to 15% of the working class suffer the devastating effects of losing their job is the path chosen to achieve the Gov. goal of reducing inflation. The people ought to make the rich suffer devastating effects to achieve the Gov. goal once. See how they like it, and how they squeal like the pigs, they are, as a result.
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