YCL - Controlled Destruction

• If the Fed were to not tighten, UST yields would surge higher than if they do tighten and stagflation (high inflation/low growth) risk would be higher in a "stop-tightening" scenario.
• I think though Fed pushes yields up, US economy performs well, and a soft-landing for the real US economy is achieved. This can only be done through "controlled destruction".
• Using quantitative tightening and a higher Fed Funds Rate to push up yields and long-term interest rates while moving asset prices down.
• This reversal of the wealth effect has the result of slowing demand and consumption in the economy while increasing the labor force participation rate (thereby decreasing the likelihood of a wage-price spiral) and also allowing the supply chain to heal and reconfigure from disruptions from Covid-19 pandemic and the Russian/Ukraine war.
• The idea is to bring inflation lower without derailing nominal growth allowing real (inflation-adjusted) US GDP growth to remain positive and avoid recession.

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