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Why the Federal Reserve’s Obsession with the Phillips Curve Will Make the Recession Much Worse: A Warning for Americans!

Macro News

The looming threat of a recession has been a topic of discussion in mainstream media.

However, instead of taking steps to mitigate the impact of the impending recession, the Federal Reserve's actions may actually make it much worse.

In fact, their hyper-focus on the Phillips Curve, an economic model used to analyze the relationship between unemployment and inflation, may exacerbate the situation.

Rebel Capitalist Pro

The central planners at the Federal Reserve seem to have a narrow focus much like Derek Zoolander's laser focus on the Malaysian Prime Minister. Their only focus is on the unemployment rate and how they can increase it to bring down inflation. They seem to have forgotten the dire consequences of high unemployment, such as loss of jobs and savings.

The recent CNBC article “The end of the beginning of the battle against inflation” highlights the central banks' need to trigger a recession to force unemployment to pick up and create demand destruction. This move would be disastrous for the millions of Americans who would be affected.

Although the supply of goods and services has increased, the increased amount of money in people's checking accounts from stimulus checks has led to a decrease in the value of money, creating inflation.

However, the supply has now returned to normal levels, and the government's actions have led to demand destruction that has resulted in disinflation.

The reduction in checking balances due to people buying treasury bonds or paying off the Federal Reserve indicates a decrease in velocity money, which could lead to a short trip of deflation. Central planners' hyper-focus on the Phillips Curve has led them to ignore the significant decrease in checking balances that could help avert a recession.

The Federal Reserve needs to take steps that mitigate the impending recession's impact instead of focusing solely on the Phillips Curve's unemployment rate and fighting inflation. By doing so, millions of Americans could keep their jobs and savings safe and reduce the potential for demand destruction.