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Fed rate hikes ineffective against fiscal deficits
The guest argued that raising interest rates is largely ineffective at tackling the current inflation because its primary driver is large structural fiscal deficits, not bank lending.
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The Callback
Structural shifts reduce US economic recession frequency
42 weeks between these two statements.
The guest's model shows that when fiscal policy is non-Ricardian (not backed by future taxes), government deficits directly stimulate demand and are inflationary.
The guest argued that raising interest rates is largely ineffective at tackling the current inflation because its primary driver is large structural fiscal deficits, not bank lending.