by Jay Davidson
American Thinker
Inflation did not start because the supply of goods and services was scarce and demand high. If that were the case, then Fed Fund interest rate increases, starting in 2021, would have reduced inflation much lower than 4%. Instead, rate increases, especially the rapidity with which the Fed increased them, bludgeoned and depressed the private economy.
The seeds of the current, extraordinary inflation cycle started growing in 2008, and for a very different reason from supply and demand.
Before we discuss this cycle, let’s talk a little about Monetary Policy. The Federal Reserve has several powerful tools at its disposal. As just mentioned, the current Fed targeted overnight rates that directly affect a depositor’s interest income (a bank’s cost) for deposits.
Banks balance their accounts every night, and if they have excess liabilities (deposits), then they transfer those excess funds overnight to their account at the Federal Reserve.