Starrob posted (at very bottom of this post: https://discussion.fool.com/4056/dave-and-tom39s-investment-life…) a link to this article (https://www.marketwatch.com/story/raising-interest-rates-wou…).
This seems like a pretty thoughtful explanation on the current inflation and interest rate situation.
If most everyone is saying limited supply or supply chain issues is driving inflation, why do we think raising rates will do much to solve it?
Sure, raising the Fed funds rate should in theory incrementally reduce demand, and hence reduce pricing pressure, but that is not addressing the suggested underlying cause, which is low supply. Further, it’s not clear that the economy is on that strong of footing (for example, negative retail sales figures for December, weak labor force participation).
I’m not saying the Fed should not raise rates, I think it would be good to get on a path of normalizing rates. I’m just saying it’s not clear how much this helps inflation if the cause is mostly disrupted supply. I do think the economy is too weak to withstand much in the way of interest rate increases other than a gradual set of increases, which is what the Fed is indicating for 2022 and what the bond market seems to be pricing in.
I’m not sure what this means for equities, and growth stocks in particular - I would like to know!