Inflation is typically (not always–think of the various oil price shocks created by a cartel) caused by an excess in aggregate demand for goods and services over supply. The Fed generally responds by increasing interest rates. This makes it more difficult to borrow money to purchase goods and services, which reduces demand, which consequently brings prices back into line.
But what about today’s conditions? There is no demonstrated excess in aggregate demand for goods and services–only a diversion of demand from services to goods as the result of the pandemic. And, with trillions of dollars sloshing around in savings, it is unnecessary for most people to borrow in order to buy goods. So, under the present circumstances, how can it help for the Fed to raise rates?
It can’t. We need to see more evidence of overheated aggregate demand and increased borrowing before there is any plausible justification for raising rates.