Hacker News Reader

Comment by RealityVoid | Hacker News Reader

Here's my take: inflation sucks, but they should just let it run its course. For several reasons, but also, my understanding is that the US debt is denominated in USD, so they would effectively be reducing their debt.

My suspicion is that the FED will mostly be choosing to inflation to run its course rather than raising rates too aggressively, and they are trying to pull off a balancing act. Once the current panic subsides, probably things will stabilize.

View on HN

You can't do that though because at a certain point inflation expectations become inbuilt and then people want to get paid more, spend more now rather than save (expecting higher prices next year) etc etc. This makes those inflation expectations self-fulfilling. The fed really needs to be aggressive enough to affect those expectations.

Once inflation gets out of the bottle, it's very difficult to get back in.

Why is that? The FED obviously has levers that it can push to lower inflation. Currently, the levers are kind in a tricky place. But if they let inflation run its course now, and then push the levers later, wouldn't it be effective?

> if they let inflation run its course

What other posters are telling you is that there's no such thing as letting inflation "run its course." What actually happens is that high inflation becomes baked into the normal operation of the economy, at which point it is extremely difficult to get rid of (i.e. not just raising interest rates above the inflation rate).

This isn't true at all. Look at french inflation figure during the post-war boom. We have lower inflation right now than back then.

Inflation doesn't "run its course". It picks up speed until it is stopped. Eventually you end up in hyperinflation, when nobody wants to hold cash for any longer than necessary.

As a side effect, the government loses the ability to issue bonds, as there will be no new buyers.

The only way to prevent this is to make sure interest rates do not stay too low below inflation for too long, and in the end, iterest rates may have to go above inflation to actually get it back down.

It's "the Fed" not "the FED".

Reply on news.ycombinator.com