Firemen and arsonists

Source: EconLog
by Scott Sumner

“Today, I’d like to explain the cause of the current high inflation. Not the part of inflation caused by supply problems; rather the portion caused by excessive nominal spending, sometimes called excessive aggregate demand. The proximate cause of this excessive spending is obviously an overly expansionary monetary policy. But I’m interested in the deeper cause; why did the Fed allow spending to grow so rapidly? I’ll show that the fundamental problem is that the Fed has the wrong policy framework.” (06/05/22)