US economic downturn could get 'very serious' as Fed risks crushing demand with rate hikes: Judy Shelton

Former Federal Reserve Board nominee Judy Shelton warned Friday the Fed's strategy to combat inflation with rate hikes could crush supply and make the nation's economic situation worse. On "Mornings with Maria," Shelton also criticized Treasury Secretary Janet Yellen for endorsing the "wrong initiatives" like more government spending policies and regulations.

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JUDY SHELTON: I think it could get very serious the longer it drags on, because if the Fed's efforts to crush inflation are instead just crushing supply, then you won't see much of an improvement on the inflation outlook, which the Fed will take as a sign that they need to be even tougher. And so they end up ratcheting higher and higher. And so I think we're looking potentially at the worst of all worlds - at an inflationary recession or stagflation. And that's what we would want to avoid. But I don't see how they're they're going to get out of this. If you have the Treasury Secretary, Janet Yellen, in her comments yesterday also included remarks praising the Inflation Reduction Act and she knows better. She was endorsing the green agenda. And she said the unfinished business of the Biden administration is to increase taxes on the wealthy and on corporations. These are exactly the wrong initiatives if you're trying to increase supply. What we really need is lower regulation, lower taxes, better energy, better trade policies, and we need to expand supply. Economic growth is not inflationary. Low unemployment is not inflationary. It's the fiscal overspending. 

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