The Economics We Learn In School:
If the Fed hikes rates, monetary policy will be restrictive leading to lower lending, excess liquidity drawn out due to higher interest rates on credit and mortgages.
This would lead to lower consumer purchasing power, companies begin restructuring, unemployment rises, sales revenue falls, prices fall, and inflation drops to the central bank target.
Real Life:
Fed hikes rates from 0.1% to 5.5% in under two years, consumer purchasing power goes a notch higher even though a lot of households max out their credit cards, unemployment drops to record lows, the stock market hits all-time highs, and the dollar drives other currencies to record lows. Yield curve inverts for over a year, failing banks get bailouts, commercial real estate books tank, nothing happens, and a company with under $80 billion in annual revenue adds $2 trillion in valuation as investors price in future revenue 🥶.
Should we redefine economics?
