Fed Chair Jerome Powell made it clear that he is not going to be bossed around by inflation anymore and, suddenly, its risk-off in the markets which badly tanked during the week ended Thursday 9/1/22 (refer to our Bubble Monitor dashboard). During the previous summer rally, it would appear that investors originally thought Powell was a puffball that wouldn’t really raise the Fed Funds Rate to over 4% from the current range of 2.25% to 2.5%. But if this realization is not bad enough, we are starting to hear that the Fed Funds Rate should really be higher than the CPI inflation rate (8.5% currently)?? Such a course of action would certainly exacerbate an ongoing recession which is perhaps best illustrated by the Baltic Dry shipping index’s -45% decline over the last month. We hear from academics that we must accept recessions and associated job losses to get inflation under control which is much worse over the long term. Easy for these tenured professors to say… We keep urging all the sane minds to consider the role of supply shortages (have you tried to buy a car recently?) in producing higher prices which we call inflation. How will higher interest rates and higher unemployment provide the economy with more supply? Well, it won’t. But it will certainly pressure indebted consumers while throwing the housing market over the cliff (extinguishing the possibility for a chunk of consumers to duck skyrocketing rents). As horrifying as it sounds, there are some things that not even the Fed can correct. Maybe in the current case, it is only American industriousness and productiveness that can bail us out of this supply squeeze.