A bullish economic wild card scenario 🃟
What if the Fed doesn't have to crush the economy to bring inflation down? 🤯
The Federal Reserve is actively trying to destroy some demand in the economy in its effort to bring down inflation.
How did we get here? Long story short, supply in the economy failed to keep up with demand, and the disconnect caused inflation to surge. The Fed, which is tasked with promoting price stability, can’t do much to boost supply. But it can use monetary policy tools to cool demand. And so here we are.
With high inflation persisting in recent months, the Fed has gotten increasingly aggressive about reining in demand, which has increased the risk of an economic recession.
But let’s be very clear: The Fed’s ultimate goal isn’t to slow the economy. Its ultimate goal is to cool inflation. Using policy tools to slow the economy is just a means to achieve those ends.
That means we should still consider the possibility that supply catches up to demand without demand falling too much. This is a bullish wildcard scenario — one in which inflation could be cooling in an economy that hasn’t been crushed by the Fed.
Indeed, there are some indications this could already be happening.
