David McLeish: The problem of using a tool to fight supply problems when it's designed to fight demand issues

<p>The Reserve Bank recently <a href="https://www.interest.co.nz/bonds/118544/reserve-bank-has-raised-official-cash-rate-level-not-seen-2008-now-sees-ocr-peaking-55" target="_blank"><strong>increased the Official Cash Rate by a record 75 basis points</strong></a> as it tries to engineer a recession to fight<a href="https://www.interest.co.nz/business/118044/searing-domestic-inflation-66-has-kept-overall-inflation-much-higher-economists-and" target="_blank"><strong> the highest inflation in more than 30 years</strong></a><strong>. </strong>But is bashing the economy into submission with its big, blunt monetary policy tool the best approach? </p><p>To probe this and more I spoke with David McLeish, Head of Fixed Income at Fisher Funds Management, in the latest episode of our <a href="https://www.interest.co.nz/of-interest-podcasts" target="_blank"><strong>Of Interest podcast.</strong></a></p><p>McLeish argues that monetary policy is largely focused on demand issues when supply issues are behind most of the current inflationary pressures. He also says he's quite optimistic about the alleviation of these inflationary pressures, arguing there are lots of reasons he can already point to as evidence monetary policy has done its job.</p><p>McLeish also explains why he's skeptical about whether inflation expectations set inflation, talks about the role of government fiscal policy in the current economic environment, the difficulty of setting interest rates by looking in the rear vision mirror for an economy that's six, 12,  or 18 months into the future, the distorted labour market, and much more.</p>