The view that higher interest rates help stamp out inflation is essentially an article of faith, based on long-held economic gospel of supply and demand. But how does it really work? And will it work this time around, when bloated prices seem at least partially beyond the reach of conventional monetary policy? It is this dilemma that has Wall Street confused and markets volatile. In normal times, the Federal Reserve is seen as the cavalry coming into quell soaring prices. But this time, the central bank is going to need some help. “Can the Fed bring down inflation on their own? I think the answer is ‘no,'” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “They certainly can help rein in the demand side by higher interest rates. But it’s not going to unload container ships, it’s not going to reopen production capacity in China, it’s not going to hire the long-haul truckers we need to get things across the country.”
Source: CNBC
