The Fed’s Biggest Problem

The established investor paradigm might be in for a major shakeup. Inflation is out of control… and the Fed’s only real hope of stopping it is to raise interest rates and stop shoveling cash into the system. The effects of rising interest rates are pretty easy to predict. Borrowing will cost more, so people and businesses will take out fewer loans. Spending slows as people become less inclined to part with their cash.
It slows down the velocity of money, which is mostly a function of behavior and psychology. For the most part, you can’t force people to spend money that spurs economic growth. You can only entice them to. And now the Fed is poised to take that enticement away. We could see a huge loss of confidence in our policymakers… which will make matters much, much worse.