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You've hit on the issue the fed has - the only real tool they have to combat inflation is to kill demand. In this case, inflation is from a mix of demand becaus

You've hit on the issue the fed has - the only real tool they have to combat inflation is to kill demand. In this case, inflation is from a mix of demand because people have money and supply shocks due to covid. The feds main tool to address supply issues is to lower rates and spur investment. Problem is, they are also trying to kill demand at the same time. For now, we just have to wait for supply issues to sort themselves out.

hedora 4y ago
It doesn't look like supply issues will sort themselves out though. Many of the current shortages (industrial plant failures, food shortages) are due to climate issues. Putin isn't helping, but even without the Russia sanctions, we'd still be facing all sorts of shortages (PVC, microchips, olive/sunflower oil, wheat, mustard, water shortages blocking the Panama Canal, etc, etc). The root cause of all that is climate change, which is worsening linearly with time, which means the backlogged impact on the economy is increasing quadratically.
- ambientenv 4y ago
  Exactly. And I don't think people, in general, have wrapped their heads around what is truly unfolding right in front of us in terms of availability of cheap, accessible high density energy and the increasing impacts of the climate crisis. Energy is the economy and the economy is energy. I like the term, "energy blind" which I've heard Nate Hagens use [1] [1] https://www.thegreatsimplification.com/ https://www.thegreatsimplification.com/
slg 4y ago
Which I think makes the argument that the Fed might not be the right entity to fight this. Powell literally says in this speech that the Fed needs to weaken labor market conditions (4th paragraph) to strengthen labor market conditions (3rd paragraph). But if the goal is strong labor market conditions and he already notes "the labor market is particularly strong", what are we all doing here? Congress should probably be the one tasked with addressing supply side issues instead of the Fed because the demand side issues aren't actually a problem that needs solving.
- el_benhameen 4y ago
  I think the Fed would agree with you. Powell and Yellen before him have indicated that they think fiscal policy is a much better means of addressing some of the issues they’ve tried to deal with via monetary policy, but the Fed can actually act while congress generally refuses to do so (IRA aside).
- throwaway894345 4y ago
  "Strong labor market" is only part of the Fed's charter. The full mandate is: > so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates
  - slg 4y ago
    But those goals are redundant because they all effectively mean keep inflation in check. According to Powell's own argument in the 3rd paragraph in this speech, keeping inflation in check is a goal because "without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all."
    - throwaway894345 4y ago
      I'm not going to argue that these things are completely orthogonal, but as the current inflation crisis illustrates, we can have steep inflation and high labor participation (of course, sustaining that labor participation in the midst of steep inflation is infeasible, but most people aren't economically literate and even professional economists get it wrong with troubling frequency).
- adolph 4y ago
  > Congress should probably be the one tasked with addressing supply side issues Because the deficient supply of self licking ice cream cones? https://en.wikipedia.org/wiki/Self-licking_ice_cream_cone https://en.wikipedia.org/wiki/Self-licking_ice_cream_cone
  - 4y ago
imtringued 4y ago
Something people don't appear to understand is that the fed only controls the brake pedal and maximum speed limit. They can't force more money into the economy as so many people seem to believe. So half the time, the Fed is just some sort of con man, trying to trick the economy into doing what they want through press releases and optimistic predictions, etc. The other time they are just slowing the economy down for good or bad reasons.

hedora 4y ago

It doesn't look like supply issues will sort themselves out though. Many of the current shortages (industrial plant failures, food shortages) are due to climate issues. Putin isn't helping, but even without the Russia sanctions, we'd still be facing all sorts of shortages (PVC, microchips, olive/sunflower oil, wheat, mustard, water shortages blocking the Panama Canal, etc, etc). The root cause of all that is climate change, which is worsening linearly with time, which means the backlogged impact on the economy is increasing quadratically.

ambientenv 4y ago
Exactly. And I don't think people, in general, have wrapped their heads around what is truly unfolding right in front of us in terms of availability of cheap, accessible high density energy and the increasing impacts of the climate crisis. Energy is the economy and the economy is energy. I like the term, "energy blind" which I've heard Nate Hagens use [1] [1] https://www.thegreatsimplification.com/ https://www.thegreatsimplification.com/

slg 4y ago

Which I think makes the argument that the Fed might not be the right entity to fight this. Powell literally says in this speech that the Fed needs to weaken labor market conditions (4th paragraph) to strengthen labor market conditions (3rd paragraph). But if the goal is strong labor market conditions and he already notes "the labor market is particularly strong", what are we all doing here? Congress should probably be the one tasked with addressing supply side issues instead of the Fed because the demand side issues aren't actually a problem that needs solving.

el_benhameen 4y ago
I think the Fed would agree with you. Powell and Yellen before him have indicated that they think fiscal policy is a much better means of addressing some of the issues they’ve tried to deal with via monetary policy, but the Fed can actually act while congress generally refuses to do so (IRA aside).
throwaway894345 4y ago
"Strong labor market" is only part of the Fed's charter. The full mandate is: > so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates
- slg 4y ago
  But those goals are redundant because they all effectively mean keep inflation in check. According to Powell's own argument in the 3rd paragraph in this speech, keeping inflation in check is a goal because "without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all."
  - throwaway894345 4y ago
    I'm not going to argue that these things are completely orthogonal, but as the current inflation crisis illustrates, we can have steep inflation and high labor participation (of course, sustaining that labor participation in the midst of steep inflation is infeasible, but most people aren't economically literate and even professional economists get it wrong with troubling frequency).
adolph 4y ago
> Congress should probably be the one tasked with addressing supply side issues Because the deficient supply of self licking ice cream cones? https://en.wikipedia.org/wiki/Self-licking_ice_cream_cone https://en.wikipedia.org/wiki/Self-licking_ice_cream_cone
- 4y ago

imtringued 4y ago

Something people don't appear to understand is that the fed only controls the brake pedal and maximum speed limit. They can't force more money into the economy as so many people seem to believe. So half the time, the Fed is just some sort of con man, trying to trick the economy into doing what they want through press releases and optimistic predictions, etc. The other time they are just slowing the economy down for good or bad reasons.