After two years of 40% expansion under Quantitative Easing, money supply started to decline in March when the Fed halted QE and implemented the first of a series of hikes in the overnight rate.  According to Milton Friedman, who said that “inflation is always and everywhere a monetary phenomenon,” arresting growth in the money supply alone is sufficient over time to halt inflation.    

So why then is the “Fed to Weigh Rates Higher Than 5%” (WSJ, Dec 6, 2022)?  Indeed, why raise rates any more at all?   Why not wait out the “long and variable lags” (18 months) Friedman said it takes for monetary policy to take effect?   

The real risk America faces today is that the Federal Reserve is trashing markets and the economy with excessively high overnight rates when enough has been done already to bring inflation back down.  If inflation comes from insufficient supply, then better to grow supply than stifle demand.   We need strong markets, not weak ones, to finance that.