The only thing the Federal Reserve can do to control inflation is to raise interest rates But this only reduces demand, which is not the problem we now have. Our current problem is a severe shortage in supply. It is caused by an international labor shortage, transportation shortage and manufacturing shortage. Making things more expensive to the consumer by increasing interest rates is not a solution – in fact, it makes matters worse.
Unfortunately, there is no mechanism for the Federal Reserve, or any government agency, to increase supply. And that is what is needed, not a reduction in demand. Any doubt that there is a supply shortage can be answered by a visit to a local grocery store or an attempt to buy a new car. Increasing interest rates only makes items cost more, thereby, increasing inflation. As long as we have a free market economy there will be no procedure to increase supply. And we are all better off, in the long run, with a free market economy.
What we are not better off with is the Federal Reserve, when faced with unacceptable inflation caused by supply shortage, to constantly cause interest rates to rise, fueling the fire.
Richard H. Ruth
Durango
