Powell vs. the Pandemic: Some Simple Monetary Arithmetic
- 1 Claremont McKenna College, Claremont, CA, USA
Abstract
The lack of inflation in 2020 despite the fastest money growth rates since World War II at first seems puzzling for anyone believing that money still matters. The monetary expansion merely offset the effects of declining velocity of money and reduced spending associated with the lockdowns, however, making the scale of the 2020 monetary expansion both appropriate and justified. The subsequent uptick in inflation in 2021 that accelerated in 2022 was caused not by the rapid money growth in 2020 but rather by the Federal Re serve’s failure to sufficiently adjust policy in 2021 as the environment ch anged. The need to adjust policy in 2021 is clearly demonstrated in the monetary data analyzed in this paper. It took far too long for the Federal Reserve to recognize the problems inherent in continuing its 2020 policy bent into 2022.
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