Comments by "DiewConklan" (@hRt42kuo7jTtmk14) on "How Can Jay Powell Control Inflation?" video.

11 times since 1914 inflation has risen above 5%. In 8 of those instances it resulted in recession and in the other 3 instances there were wars and a depression going on. So it seems the fate of the near term future of the economy is most likely sealed. Powell talks as if he can avoid recession and avoid raising interest rates very high. But he’s seemingly made a number of mistakes already by overbuying assets and keeping rates at 0% for too long. I will fall off my chair if he’s able to pull a rabbit out if his hat or change the pattern of history.
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@McLaneFS yes, there was a depression from 1920-1921 at the end of the Spanish Flu pandemic when inflation hit nearly 20%. But the point is that every time there has been inflation above 5% it either caused a recession or occurred during a war or during a depression. History is often the greatest indicator of future performance.
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All I’m saying is that there was a recession following any period of runaway inflation of over 5% (when there wasn’t already a war or a depression going on). And the last time there was a pandemic it lead to 15% inflation followed by a depression with -10% inflation. And there is no evidence to suggest that this time it will be any different.
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@Jonathan-gk6se I’m not sure unemployment and recession are linked in that order unless perhaps unemployment is already very high before the recession starts. High unemployment though may be a sign of an ongoing recession, but recessions are generally caused by times when businesses no longer have the ability to expand. Certainly a rise in interest rates and a reduction in liquidity is one of the major causes of reducing business expansions, which basically also leads to a reduction in GDP. And as interest rates rise, the cost of borrowing increases for consumers because this also effects borrowing rates for car loans, mortgages, and other types of consumer related debt in general. Then consumer spending decreases, which is ultimately what hurts business expansions. Then the higher borrowing rates also lead to various types of debt defaults like mortgages and other variable rate borrowing costs that rise. It’s a domino effect with many dominoes falling at the same time. Then once all of these things occur from the higher interest rates set by the Fed, recession takes hold, businesses start laying off people and unemployment typically starts to rise.
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@McLaneFS regarding double digit inflation, there is an interesting article called “No, the real inflation rate isn’t 15 percent” which addresses this debate quite well. If you search for it by that article title you should be able to find it if your interested.
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You could definitely see rates of 7% again. These quarter point hikes that eventually go up to a neutral stance of 2.5% aren’t going to have any effect on this type of runaway inflation. It’s going to take much more than that. Everyone is in denial though thinking it’s going to auto-magically go away on its own because they much prefer that narrative, but hope doesn’t fix problems. The Fed is great at making the big banks and corporations rich, but terrible at fixing fiscal and monetary troubles created by the big screwnami they started in 2020. So 2022-2023 will be interesting to see how they fumble with trying to bring down inflation. 2.5% may start bringing down the economy, but not inflation. Things could get really ugly when they are forced to keep going with the hikes.
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