, the Fed hikes interest rates up to meet inflation, which in turn slows the economy, causes the unemployment rate to surge, and crashes us into a recession.
The worst case is an economy where interest rates and inflation never meet. It's a limbo of stubbornly high inflation and higher interest rates. The Fed continues to hike rates but never does so in a way that truly tames inflation. Price growth sticks around 4% or 5%, well above the Fed's target. Businesses are stuck with rapidly rising input and labor costs, higher borrowing costs, and major uncertainty about economic growth.
"The idea that tightening a percent or two from here will beat inflation is hardly credible," he said. Einhorn argued that the Fed needed to hike more dramatically — to give the economy a massive hike as Paul Volcker did as chairman in the 1980s. But Einhorn added a worrying wrinkle to this scenario: that the Fed would be stopped in its tracks by what high interest rates would do to the US Treasury.
If Einhorn, Bianchi, and Melosi are right, we could be in economic limbo of stubbornly high inflation and higher interest rates for a while.
Oh yea, they said something similar around mid of March 2020...
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Economic nite mare has been here?
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