Due to structural changes in the banking system, the impact interest rate policies have on inflation. Joseph Wang, AKA Fed Guy, argues that increases in the interest rate could actually be inflationary in nature, contrary to popular belief.
Fed Guy makes the case that rate hikes directly boost the asset returns of banks while banks’ funding costs remain the same. This effectively incentivizes credit creation.
In large part, this is due to the fact that banks have re-arranged their funding structure from their usual rate sensitive money market funding to rate insensitive retail deposit funding.
This is only scratching the surface of the ever-changing monetary environment.
Fed Guy goes into more detail about how the banking system has transformed in recent decades and why traditional monetary tools may not have the desired effects of yesteryear.
Watch the video below to learn why the monetary game is changing before our very eyes:
P.S. For more of Joseph’s work head here: