The Fed has to raise interest rates until demand softens enough for inflation to fall
If fundamentals are strong, that just means the Fed will have to raise rates more to achieve the desired effect on demand.
In fact every time stocks rally on hopes the Fed will stop tightening, it makes the Fed more likely to keep tightening. That is because higher stock prices bolster consumer wealth and confidence and thus demand.
Greg Ip 13 July 2022
https://www.wsj.com/articles/beware-wishful-thinking-about-inflation-and-recession-11657719575
9.1 per cent for June, the headline number for US CPI inflation
The stunning number, which will be splashed across the front pages of newspapers and dominate news shows and websites, will further erode the already-damaged policy credibility of the Fed and undermine the effectiveness of its all-important forward guidance tool.
Fortunately, inflation will come down over the next three months. That’s the good news. Less good is the continued broadening of price pressures that was evident in today’s detailed data.
Mohamed El-Erian FT 13 July 2022
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