The post-covid monetary hangover
When the Covid started, the Federal Reserve reduced interest rates to zero and increased the money supply unprecedentedly. It was a reckless policy whose consequences have been inflation of 7% in 2021, of 9.1% in the 12 months to June 2022 and it reached an annualized rate of 13% in the first half of 2022. The purpose of this note is to discuss how inflation could evolve after past mistakes and under current policies. It starts by discussing the magnitude of the monetary shock, the monetary imbalances that remain after the recent inflation run off and finally, a discussion on the chances for success in bringing inflation back to the 2% target.