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As a Fed watcher I can dispel a few of these notions. The Fed was never going to tell people inflation was taking hold. The Fed tells people what they would lik

As a Fed watcher I can dispel a few of these notions. The Fed was never going to tell people inflation was taking hold. The Fed tells people what they would like the market to be… not what it is. They set the “framing” used by many market participants, this framing is one of its key tools. The Fed can’t control government spending. Massive government spending, funded by new money, caused inflation. The Fed can’t do much about that. If anything Powell consistently advocated for a more balanced federal budget precovid.

vorpalhex 4y ago
What are some of the better fed news aggregators?
- thoughtstheseus 4y ago
  Most central bank news is terrible. Follow Joseph Wang- @Fedguy12 on Twitter. He’s a former Fed trader with good insights, lots of podcasts. His book, central banking 101 is fantastic, very readable.
  - selimthegrim 4y ago
    Is this the same HK-based fellow on Quora?
rnk 4y ago
I don't the this cause of inflation is settled. Right now it's higher energy prices, in large part caused by the Ukraine war. Then covid recovery caused a big demand increase, and the shipping industry building ever larger ships that can only go to the LA ports on the west coast led to a delivery shortage, which led to a squeeze, then a worldwide shortage of ICs caused auto manufacturers to have a shortage, the Ukraine war even caused wiring harness shortages. It's one thing after another, those were not caused by the Fed or stimulating spending from the government. I'm sure the government giving people money so they wouldn't lose their lives during covid unemployment was a stimulus. But there were all these other things going too.
- thoughtstheseus 4y ago
  Yes I agree. There are many causes of inflation. The two principal ones IMO are (1) Supply / demand imbalances (2) Government expansion of the money supply working through the economy.
- swader999 4y ago
  Canceling Keystone his first day in office doesn't help.
  - koshergweilo 4y ago
    I don't see what that has to do with the current shortage as the main bottleneck is with refining oil, not extracting/transporting it
  - basch 4y ago
    a pipeline that wouldnt even be operational yet?
  - rnk 4y ago
    That obviously did not make a difference now because it wouldn't be in use and the issue seems to be refining more than oil supply.
  - thephyber 4y ago
    I think you mean they Keystone XL pipeline. The Keystone pipeline has been running and Biden didn’t cancel it. Keystone XL is a zombie project which abandoned by the development/infrastructure company. It had been stuck in regulatory review and litigation for a decade. Environmental reviews by both the Obama Admin and Trump admin state that Keystone XL would not have lowered gasoline prices. You are pretending like all oil/gas products are fungible, when in reality most refineries in the US are not capable of refining all raw product. Hence “Energy Independence” is purely a marketing term and we still need to export lots of raw material and import other kinds of raw material to match what we are capable of refining.
asimpletune 4y ago
Is that really the case though? I thought inflation is just when stuff gets more expensive, and how it’s caused is complicated. So, it can be increase in demand, decrease in supply, both on the buy and sell side (ie supply/demand of things, including dollars). I think it’s reasonable to say that the majority of the planet shutting down during the pandemic has at least as much to do with inflation as the fed’s monetary policy, if not much more.
- thephyber 4y ago
  I generally agree with your sentiment. Resuming economic activity after shut downs (and the habits the shut downs changed) is taking time. There is no obvious natural experiment to tease out how much is caused by CB interest rates and how much is fiscal policy. Most of the countries that did one also did the other. Also, data points on these issues are gathered monthly (if that often), so current analysis will miss a lot in the “fog of war” until there is more data to analyze.
mullingitover 4y ago
> Massive government spending, funded by new money, caused inflation. How is US government spending causing 8% inflation in Germany? It's almost like this is a global phenomenon caused by supply shocks and price gouging of essential commodities.
- thoughtstheseus 4y ago
  Inflation can be caused by more than one factor…
  - SantalBlush 4y ago
    But that's not really what you wrote, which is what people are pointing out. >Massive government spending, funded by new money, caused inflation.
- vimy 4y ago
  The ECB printed money too.
- WalterBright 4y ago
  Germany deficit spends, too.
  - orwin 4y ago
    France deficit spent more than germany, and have lower inflation figure. Someday, people will understand that central banks issue less than 8 percent of the circulating money, and that government debt is just another way of financing retirement pension funds.
    - WalterBright 4y ago
      The US did not have inflation when it did not have fiat money. There's well over a century of monetary history in the US without fiat money.
jbay808 4y ago
> The Fed tells people what they would like the market to be… not what it is. Fundamentally, you can try to control expectations by feeding biased projections, but you have to maintain a certain signal-to-noise ratio in doing so, or else the market will learn to ignore you. You can feed the market inaccurate projections only by spending down your accumulated credibility, which has to be bought back later with accurate projections. (This applies in real life, too. It takes trust to be believed, and it costs trust to mislead). "If a new inflation target is too ambitious, and the central bank fails to attain it, the central bank may lose its credibility, which may render less effective any other policies it pursues." [https://www.federalreserve.gov/econres/notes/feds-notes/raising-the-inflation-target-lessons-from-japan-20200108.htm https://www.federalreserve.gov/econres/notes/feds-notes/rais...] If the market has learned to ignore the Fed, then it becomes very costly for the Fed to achieve accurate projections and earn back its credibility, because it can't rely solely on influencing expectations to achieve its results. It is left only with backing up its bark with a real bite.
AnimalMuppet 4y ago
> The Fed can’t control government spending. True. > Massive government spending, funded by new money, caused inflation. The Fed can’t do much about that. False. The Fed controls the money supply - that is, the creation of new money. (Congress doesn't, thank God.) If the Fed didn't increase the money supply, the government would have to borrow more on the open market, or else tax more. The first might cause visible issues earlier; the second would be politically expensive.
- thephyber 4y ago
  Traditional economics teaches us what you said, but the low inflation environment from 2009-2019 suggests it’s more complicated. The Fed was struggling to even achieve the target +2.0% inflation rate for that entire decade, even as Congress passed gargantuan spending bills every year. I tend to agree with your sentiment, but wanted to point out there are obvious issues with our analysis.

vorpalhex 4y ago

What are some of the better fed news aggregators?

thoughtstheseus 4y ago
Most central bank news is terrible. Follow Joseph Wang- @Fedguy12 on Twitter. He’s a former Fed trader with good insights, lots of podcasts. His book, central banking 101 is fantastic, very readable.
- selimthegrim 4y ago
  Is this the same HK-based fellow on Quora?

rnk 4y ago

I don't the this cause of inflation is settled. Right now it's higher energy prices, in large part caused by the Ukraine war. Then covid recovery caused a big demand increase, and the shipping industry building ever larger ships that can only go to the LA ports on the west coast led to a delivery shortage, which led to a squeeze, then a worldwide shortage of ICs caused auto manufacturers to have a shortage, the Ukraine war even caused wiring harness shortages. It's one thing after another, those were not caused by the Fed or stimulating spending from the government. I'm sure the government giving people money so they wouldn't lose their lives during covid unemployment was a stimulus. But there were all these other things going too.

thoughtstheseus 4y ago
Yes I agree. There are many causes of inflation. The two principal ones IMO are (1) Supply / demand imbalances (2) Government expansion of the money supply working through the economy.
swader999 4y ago
Canceling Keystone his first day in office doesn't help.
- koshergweilo 4y ago
  I don't see what that has to do with the current shortage as the main bottleneck is with refining oil, not extracting/transporting it
- basch 4y ago
  a pipeline that wouldnt even be operational yet?
- rnk 4y ago
  That obviously did not make a difference now because it wouldn't be in use and the issue seems to be refining more than oil supply.
- thephyber 4y ago
  I think you mean they Keystone XL pipeline. The Keystone pipeline has been running and Biden didn’t cancel it. Keystone XL is a zombie project which abandoned by the development/infrastructure company. It had been stuck in regulatory review and litigation for a decade. Environmental reviews by both the Obama Admin and Trump admin state that Keystone XL would not have lowered gasoline prices. You are pretending like all oil/gas products are fungible, when in reality most refineries in the US are not capable of refining all raw product. Hence “Energy Independence” is purely a marketing term and we still need to export lots of raw material and import other kinds of raw material to match what we are capable of refining.

asimpletune 4y ago

Is that really the case though? I thought inflation is just when stuff gets more expensive, and how it’s caused is complicated. So, it can be increase in demand, decrease in supply, both on the buy and sell side (ie supply/demand of things, including dollars). I think it’s reasonable to say that the majority of the planet shutting down during the pandemic has at least as much to do with inflation as the fed’s monetary policy, if not much more.

thephyber 4y ago
I generally agree with your sentiment. Resuming economic activity after shut downs (and the habits the shut downs changed) is taking time. There is no obvious natural experiment to tease out how much is caused by CB interest rates and how much is fiscal policy. Most of the countries that did one also did the other. Also, data points on these issues are gathered monthly (if that often), so current analysis will miss a lot in the “fog of war” until there is more data to analyze.

mullingitover 4y ago

> Massive government spending, funded by new money, caused inflation. How is US government spending causing 8% inflation in Germany? It's almost like this is a global phenomenon caused by supply shocks and price gouging of essential commodities.

thoughtstheseus 4y ago
Inflation can be caused by more than one factor…
- SantalBlush 4y ago
  But that's not really what you wrote, which is what people are pointing out. >Massive government spending, funded by new money, caused inflation.
vimy 4y ago
The ECB printed money too.
WalterBright 4y ago
Germany deficit spends, too.
- orwin 4y ago
  France deficit spent more than germany, and have lower inflation figure. Someday, people will understand that central banks issue less than 8 percent of the circulating money, and that government debt is just another way of financing retirement pension funds.
  - WalterBright 4y ago
    The US did not have inflation when it did not have fiat money. There's well over a century of monetary history in the US without fiat money.

jbay808 4y ago

> The Fed tells people what they would like the market to be… not what it is. Fundamentally, you can try to control expectations by feeding biased projections, but you have to maintain a certain signal-to-noise ratio in doing so, or else the market will learn to ignore you. You can feed the market inaccurate projections only by spending down your accumulated credibility, which has to be bought back later with accurate projections. (This applies in real life, too. It takes trust to be believed, and it costs trust to mislead). "If a new inflation target is too ambitious, and the central bank fails to attain it, the central bank may lose its credibility, which may render less effective any other policies it pursues." [https://www.federalreserve.gov/econres/notes/feds-notes/raising-the-inflation-target-lessons-from-japan-20200108.htm https://www.federalreserve.gov/econres/notes/feds-notes/rais...] If the market has learned to ignore the Fed, then it becomes very costly for the Fed to achieve accurate projections and earn back its credibility, because it can't rely solely on influencing expectations to achieve its results. It is left only with backing up its bark with a real bite.

AnimalMuppet 4y ago

> The Fed can’t control government spending. True. > Massive government spending, funded by new money, caused inflation. The Fed can’t do much about that. False. The Fed controls the money supply - that is, the creation of new money. (Congress doesn't, thank God.) If the Fed didn't increase the money supply, the government would have to borrow more on the open market, or else tax more. The first might cause visible issues earlier; the second would be politically expensive.

thephyber 4y ago
Traditional economics teaches us what you said, but the low inflation environment from 2009-2019 suggests it’s more complicated. The Fed was struggling to even achieve the target +2.0% inflation rate for that entire decade, even as Congress passed gargantuan spending bills every year. I tend to agree with your sentiment, but wanted to point out there are obvious issues with our analysis.