Raising interest rates is the wrong solution to the inflation problem, analyst says

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• Raising interest rates to tame demand and therefore inflation is not the right solution as high prices have been mainly driven mainly by supply chain shocks, MBMG Group managing partner Paul Gambles told CNBC.
  
• “Supply is very difficult to manage, we are finding across a whole bunch of industries, a whole bunch of businesses, they’re having very different challenges just turning the taps back on,” he said.
  
• “And the Fed are the first ones to put up their hands and say monetary policy can’t do anything about supply shock. And then they go and raise interest rates,” he added.
  

Raising interest rates to tame demand — and therefore inflation — is not the right solution, as high prices have been driven mainly by supply chain shocks, one analyst said.

Global manufacturers and suppliers have been unable to produce and deliver goods to consumers efficiently during Covid lockdowns. And more recently, sanctions imposed on Russia have also curtailed supply, mainly of commodities.

“Supply is very difficult to manage, we are finding across a whole bunch of industries, a whole bunch of businesses, they’re having very different challenges just turning the taps back on,” Paul Gambles, managing partner at advisory firm MBMG Group, told CNBC’s “Street Signs” on Monday.  

Referring to the energy crisis that Europe faces as Russia threatens to cut off gas supplies, he said that “on American independence day, this is sort of a co-dependence day where Europe is absolutely shooting itself in the foot, because so much of this has come about as a result of sanctions.”

“And the Fed are the first ones to put up their hands and say monetary policy can’t do anything about supply shock. And then they go and raise interest rates.”

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