Inflation is driven by money supply which drives demand as they are correlated.
Money supply drops which means demand will drop but there is a lag to it because the Fed started tightening a while back but there is a lag time till you feel the full impacts trickle into the economy.
Same reason why a recession is announced a like a year after it has already started.
The Fed cuts rates to avoid deflation because it would lead to larger job losses where disinflation is the slowing down of inflation which still leads to job losses but not as great as it would be with deflation.
I have the exact same question. I can't understand why unemployment would increase if inflation is decreasing.
Inflation is driven by money supply which drives demand as they are correlated.
Money supply drops which means demand will drop but there is a lag to it because the Fed started tightening a while back but there is a lag time till you feel the full impacts trickle into the economy.
Same reason why a recession is announced a like a year after it has already started.
The Fed cuts rates to avoid deflation because it would lead to larger job losses where disinflation is the slowing down of inflation which still leads to job losses but not as great as it would be with deflation.