Federal Reserve Rate Hikes Helping or Hurting the Economy?

Interest rate hikes may not cure inflation, but they will damage the middle class, the dollar, and our independence

A view of the Federal Reserve in Washington on Jan. 13, 2015. Brendan Smialowski/AFP/Getty Images

Commentary

There’s been a lot of concern about rising inflation, and rightfully so. Striking workers and families are struggling to make ends meet as the cost of living keeps rising.

As a result, working Americans are seeing their buying power evaporate before their eyes as the price for gas, groceries, and goods continues to outpace their ability to earn. Moreover, according to Federal Reserve (Fed) Chairman Jerome Powell, additional hikes in interest rates are possible, even probable, before the year is out.

The Fed claims the idea behind the interest rate hikes is to combat inflation. The thinking is that as the cost of money rises (interest rates), so will the cost of goods. Can’t argue with that, as far as it goes. But, of course, there’s more to the story.

Continuing with that logic, at some point, as prices of goods and services continue to rise higher and higher, consumer demand for them will flatten and then eventually fall. This process could take months or even years. As a result of cratering consumer demand, producers will be forced to lower their prices to get sales, which is called “deflation.”

In other words, we’re to believe that rising interest rates will eventually slay the inflation dragon.

Different Causes of Inflation

But it’s not that simple, nor does it always work that way.

Put simply, there are several causes of inflation. One is demand-side inflation, where demand outpaces supply. Producers are working at full capacity and still can’t keep up with demand. Demand-side inflation is often a result of too much money in the system. At some point, higher prices can help lessen the “excess demand” that’s putting upward pressure on prices.

There’s also supply-side-driven inflation. That’s where demand hasn’t risen, but rather, the level of the supplies of goods and services has fallen. All other factors being equal, with fewer goods and services being produced to meet even normal consumer demand, the new scarcity of everyday goods and services causes prices to rise. In this instance, supply-side inflation won’t be cured by higher interest rates. It may even cause inflation to accelerate.

We’re seeing inflation that’s driven by a lack of supply, not hyper-demand for more products.

There are plenty of reasons for supply levels to be falling. The COVID-19 pandemic certainly disrupted supply chains in a variety of industries. So, too, has the war in Ukraine restricted fuel and food shipments in some areas. Other causes are disruptions in food production, such as drought and disease causing fewer cattle to be slaughtered, other farm animals being culled, farmland producing less than usual, and other reasons. Fuel and labor costs are impacting both supply- and demand-side inflation.

Trillions of Dollars in New Debt

Additionally, a loose monetary policy by the Fed is also a factor. Gross amounts of deficit spending amounting in the tens of trillions of dollars are a leading cause of inflation and overheating demand. In this case, the excess supply of dollars that’s contributing to inflation by the devaluation of the dollar itself. Thus, the current policy is not only wrecking the middle class in the United States, but it’s also undermining the dollar abroad.

Consequently, nations worldwide are moving away from the dollar as quickly and painlessly as they can.

Who can blame them, especially when the prospect of a BRICS gold-backed currency may be coming within weeks or months?

Why would any nation wish to use an inflated currency that wreaks havoc with their currency in the global market?

In practical terms, why would any country wish to buy goods like oil or food with a currency that requires them to print more of their own currency in order to exchange them for inflationary dollars?

No one wants that. And yet, here we are. It’s not as if the Fed policy wonks don’t know this.

They do.

Digital Dollar—The Final Solution?

Why, then, would they pursue such a policy?

It’s harming the economy, the dollar, and the middle class. What will happen if the rest of the world continues to shun the dollar in favor of other currencies?

Should we regard the Fed with suspicion?

On the one hand, probably so. The Fed is hurting the economy, the middle class, the dollar, and our way of life, one rate hike at a time. But on the other hand, the Fed just happens to have a new “final solution” to minimize inflation, waste, and financial fraud.

That final solution would be none other than the Fed’s digital dollar. It’s basically the Fed’s version of bitcoin but without the privacy. Depending on the source, the plan may well be to eliminate cash and perhaps even all traditional dollar-denominated assets and replace them with digital currency.

No Cash, No Inflation, No Privacy

There’s really nothing to worry about. The great humanitarians at the Fed are looking out for us. Under the digital dollar, cash will be obsolete. Sooner than later, it will no longer be legally acceptable.

The upside is that there may not be any inflation with the digital dollar. That would certainly be another selling point to push heavily out to the masses of Americans trying to keep everything together. But there wouldn’t be any privacy or personal autonomy, either. By definition, the Fed will monitor and control the digital dollar and all who use it.

Does this put the current inflation and interest rate hikes in a different light?

If not, maybe it should.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.