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The Fed has been targeting 2% inflation for years now, and it has never materialized. Inflation can be caused by money supply expansion, but also economic capa
by dv_dt 6y ago
The Fed has been targeting 2% inflation for years now, and it has never materialized. Inflation can be caused by money supply expansion, but also economic capacity losses (eg. think chip shortages, climate disasters, and cargo ships stuck in canals).
- bpodgursky 6y agoThe Fed has also never attempted anything even approaching the QE and stimulus of the past year. It's really completely uncharted territory.
- dv_dt 6y agoThe post 2008 QE was 4.3T in the same order of magnitude of the QE of the past year. There was no runaway money supply driven inflation. If you look at work from macro economist Claudia Stam, who as part of the Fed studied the effects of 2008 recession aid programs - her work concludes that we actually have more margin for monetary stimulus and we can alleviate a lot of economic disruption by undertaking that stimulus for valuable infrastructure investments. If one were to compare to 2008 to the pandemic, I'd actually hypothesize that the main inflation driver now is not from QE (though it is affecting the stock market somewhat like it did in 2008), but driven from disrupted lines of production from a mix of pandemic and climate change driven infrastructure disruption. And it's that capacity drop that is pushing most of the inflation we're seeing now.