The Fed won’t be doing anything to redirect capital. They strictly let the market decide how and where to do that. So to the extent monetary policy is too accommodative relative to the inflationary environment, they need to tighten regardless of the supply-side things they can’t control. I think they are on the right path and are being remarkably humble about the swirl of uncertainties surrounding their policy decisions.

The Fed thinks the only tools they have to reduce inflation are raising FF rates and shrinking their balance sheet. Higher rates hurt employment and housing liquidity, and do not address the source of the problem. They need to find ways to steer capital to rebuilding onshore manufacturing to replace both the low-paying jobs that disappeared and the cheap goods they produced. Congress has been doing a little of that, but that “fiscal” help will stop and maybe even reverse in 2023.

Raising interest rates just makes onshoring slower and more expensive – it’s counter-productive.

There is a reason inflation was low for 25 years: globalization. The world was flooded with cheap goods, mostly from China. Low-pay manufacturing jobs disappeared from advanced economies.

There is a reason inflation is now high: re-shoring, drastically exacerbated by China’s lockdowns. It’s generating huge demand for the jobs that had gone.