To The Moon

Lael Brainard, the Vice Chair of the Fed, vowed Wednesday to press the fight against inflation that she said is hurting lower-income Americans the most.

It means more interest rate increases and keeping rates higher for longer. Brainard cushioned the comments with an acknowledgement that policymakers will be data dependent and conscious of overdoing tightening.

Remember, it could be the last speech before its quiet period of the September meeting.

Besides, Federal Reserve Bank of Cleveland President Loretta Mester said Wednesday that she doesn’t expect the economy to fall into recession, but risks of that happening are rising, in a speech in which she stressed that the U.S. central bank needs to press forward with increasing its short-term interest rate target.

$Tesla Motors(TSLA)$ 's Elon Musk said the Inflation might hit the peak, while Mester said, In my view, it is far too soon to conclude that inflation has peaked, let alone that it is on a sustainable downward path to 2%.

It is the routine that the Fed's need to focus.

We believe there would be two situation that the Feds reach's the end of interest rate increasing,

First, A severe Inflation continues. In this circumstances, the Feds will do whatever, including more unemplyment and deep recession, to raise the interest rate, to make inflation down to the target of 2%. Then, decrease the rate after the inflation. 2022-2024's inflation would be like 6.1%, 4.0% and 2.0%. It's an aggressive path, which would burden US Goverment's debt.

Second, A compromise to Inflation, which means mild interest rate increasing. When the rate reached 4-4.5%, the Fed's will stop anyway. Which means, the Feds allows the inflation stay above 3% for some period, in exchange for less harm to the economy.

According to the New Keynesian Philips Curve, the unemployment would be higher if A severe Inflation happens.

In either case, the unemployment will rise above 5% at the end of 2023.

BTW, the balance sheet off would accelerate the routine, if will make the real rate higher than what norminal rate is.

Anyway, a tough work to do.

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