In theory any interest rate below the rate of inflation is a stimulatory (why would anyone keep cash if it loses purchasing power?), so it makes perfect sense that interest rates have needed to be higher than the rate of inflation in order to tame it.
That's the theory that got a lot of portfolios demolished in 2010-2018, or at least led a lot of people to miss out on a historic and epic bull market. The FFR was below CPI for almost that entire time and yet CPI was well-behaved. On the chart, it looked like something crazy was happening that would imminently lead to inflation, but IRL there was some dis-inflationary cause out there absorbing all that QE and preventing ZIRP from pushing inflation above 2-3%.
The fact that the government was busy printing money to buy its own debt led a lot of classical economists and "Austrians" to declare hyperinflation was imminent. They even inflated a bubble in gold that eventually collapsed. They were wrong about inflation, the USD's value, stocks, and everything except how to earn clicks.
Basically, there was something wrong with their theories that led to something wrong with their forecasts that led to something wrong with their portfolios. That's why in the OP I tried to account for monetary leakage. I.e. if the US prints a dollar, and that dollar is spent on an imported product, it tends to go overseas, only to be invested back into US treasuries. It does not circulate in the economy, it does not contribute to monetary velocity, and the price-setting markets never see that dollar again once it leaves the country. Once in treasuries, that dollar might as well have ceased to exist as far as the open market is concerned, except for some interest payments and eventual redemptions. This cycle can continue as long as there is growing foreign and domestic demand for USD as a stable store of wealth among wealthy people and their corporations. Indeed, if the money supply somehow FAILED to grow by at least the trade deficit, we might have disinflation.
The US trade deficit is thus a proxy for monetary leakage and shows how massive the leak is (3.7% of GDP), but even it is incomplete. Rising wealth inequality in the US leads to more dollars piling up in investments (things rich people spend their money on) and fewer dollars chasing after goods and services in the price-setting marketplaces (things poor people spend their money on).
The GFC-era stimulus was criticized as going straight into the pockets of rich investors, banks, and corporations while offering minimal benefit to the poor and middle class, and the COVID-era stimulus corrected that deficiency by making payments directly to consumers. Of course, they
blew spent the money on goods and services, so the economy roared back much more powerfully than in the post-GFC era. Those stimmie checks are still bouncing around in the economy so quickly that we're experiencing shortages of goods and services. That's why we have so much higher monetary velocity today than we did in, say, 2012 or 2013 back when people were grumbling about the "banksters" who profited from the stimulus.
The money will eventually end up in the hands of foreign vendors and wealthy people in the US. It always does. However the accumulation of wealth in these places seems to be taking a while. This lag time was probably the biggest blind spot in my model that caused me to dismiss inflation as transitory in late 2021. I assumed the stimmie checks were making it into the pockets of rich investors, executives, and Asian manufacturers faster than they actually were. Instead, Americans are trading the dollars with each other a few times in the price-setting domestic marketplace before someone buys an import and the dollars disappear from that domestic marketplace.
This model of monetary leakage explains the "conundrum" of the low-inflation, low-rates 20-teens, but we need information about how many hands, on average, a dollar has to pass through to eventually end up in treasuries. Judging by the M2 chart, money supply is flatlining, but will take at least 3-4 years of being flatlined to return to its pre-COVID trend. However, the Fed helpfully offers a "Velocity of M2" metric!
https://fred.stlouisfed.org/series/M2VI shouldn't be as excited as I am about finding this. Ultra dorky! But I was today years old when I discovered that the velocity of money has been plummeting since the 1990s. I was also today years old when I noticed the correlation with the trade deficit.
And there's the relationship I've been proposing for a long time. The higher our trade deficit, the lower our velocity of money. When we buy imports and money leaves the US, not much of it returns to the price-setting domestic marketplace. This is why despite all efforts in the 20-teens, the Fed couldn't get monetary velocity / inflation up to safe levels. Cash was leaking out of the US like a sieve. It is doing even more so today; the average dollar only traded hands 1.12 times in the first quarter of 2022.
I've made lots of bearish / pro-inflation arguments, but this might be my best bullish / anti-inflation argument. Monetary velocity is slowing, stimulus cash is still steadily leaving US marketplaces and migrating to US treasuries even if at a less-than-immediate pace, and the only thing keeping inflation high is the excess of money (see M2) that hasn't yet leaked out of the marketplace, even if it is transacting slowly. When the last US stimmie check goes to an Asian electronics manufacturer, to be reinvested in US treasuries, inflation will collapse. Seen in this light, the 5-year and 10-year inflation breakeven rates seem more rational. Those investors can win the long game either through a nasty disinflationary recession or through monetary leakage.