Responses to the CPI claiming its components cannot be controlled by the Fed with rates are wrong

OK folks, you will read so many responses to the US CPI hike claiming that these are components that the Fed cannot control with rates.

The basic objection to raising the CPI is that it affects things the Fed can’t do anything about. The Fed should therefore further reduce its rates because rates have no impact on these components.

This ignores what history tells us (again and again), which is that a central bank faced with inflation in components it cannot control will increase regardless (or, in current situation of the Fed, will not decrease).

What a central bank can solve is to lower demand. This is why these components are still important.

Consider rising oil prices. The Federal Reserve has no control over these.

Think about supply chain grunts. The Federal Reserve has no control over these.

However, the Fed will do what it can do in situations like this, which is to attack the demand side. Which means higher rates (or high rates, as is the case now) to lower demand in the economy and thus cope with rising prices. This happens again and again, don’t get caught in the “the Fed can’t control oil prices (for example) with rates, so they won’t do anything” trap. It doesn’t work that way.

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In the current situation, the Fed will not make cuts in June because inflation is still too high and not falling. We just experienced a third consecutive month of higher core CPI.