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> That sounds like a way to lower the money supply, which is exactly what I'd expect of a central bank trying to fight inflation. Not the best idea if the prob

> That sounds like a way to lower the money supply, which is exactly what I'd expect of a central bank trying to fight inflation. Not the best idea if the problem with inflation is on the supply side - energy costs and so on, corporations have to find a way to cover these and the easiest way is to raise prices. Reduction of money supply will make fall in demand and those corporations will find it difficult to cover day to day - either they'll have to increase prices even more or go bankrupt. If they really wanted to fight inflation, they should have looked at easing supply side problems.

dragontamer 3y ago
The Fed Reserve is a giant bank. They literally have no production capability. What do you want them to do, turn into an oil company? The only thing the Fed Reserve can do is move interest rate policy and other indirect-means of controlling M2 money supply.
- BurningFrog 3y ago
  Right. Congress and the President could do things like that. But since they have to win elections, their incentives are in the opposite direction. Which is why independent central banks were invented.
- varispeed 3y ago
  Indeed, the Fed often seems like a Pavlov's dog, salivating at the sound of "inflation" and hastily raising interest rates. But as we all know, not every economic hiccup can be cured with the same medicine. Sometimes, it's more prudent to pass the baton to the government and let them address the root causes, rather than reflexively resorting to the same old monetary tricks.
  - dragontamer 3y ago
    > salivating at the sound of "inflation" and hastily raising interest rates Please name the times in the last 30 years where the Fed has hastily raised interest rates. Lemme help you out: https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS The majority of the Fed's actions has been to drop interest rates. > rather than reflexively resorting to the same old monetary tricks. The Fed can _only_ do monetary tricks. That's all they're authorized to do.
    - varispeed 3y ago
      Here is a better graph (although it does not contain recent data): https://www.gzeromedia.com/the-graphic-truth-50-years-of-us-inflation-vs-interest-rates https://www.gzeromedia.com/the-graphic-truth-50-years-of-us-... > The Fed can _only_ do monetary tricks. That's all they're authorized to do. When you only have a hammer, everything starts looking like a nail. Not everything can be solved by monetary tricks, but it seems like they just have to do something for the sake of it, regardless if that means tanking the economy. But hey, once economy dies, there will be no inflation! Genius.
      - dragontamer 3y ago
        Your graph shows declining interest rates as well? You're not posting very much evidence that the Fed often raises interest rates. Your graph clearly shows the 15%, 17%+ federal funds rate of the 1970s, and the 5% we're at today, and the 0% we spent the last decade at. The error is clearly that we've overcorrected and dropped rates too low.
        varispeed 3y ago
        More like it acts like a Pavlov's dog.
        dragontamer 3y ago
        I'm well aware of what psychological conditioning is. But the data you posted does not support your claim.
  - dragonwriter 3y ago
    > Sometimes, it's more prudent to pass the baton to the government and let them address the root causes, rather than reflexively resorting to the same old monetary tricks. That’s not the Fed’s choice. The Fed has a mandate to target specific outcomes with a narrow set of monetary policy tools, acting within the existing fiscal framework. Congress can make whatever fiscal interventions it chooses, whenever it chooses; the Fed doesn’t pass the baton to Congress when it feels monetary policy is inadequate, Congress passes it to the Fed by inadequate fiscal policy to acheive the goals Congress mandates the Fed to intervene to correct towards. If you think a situation calls for a fiscal response that osn’t happening, you shouldn’y blame the Fed for not passing the baton, you should blame Congress for not acting. Congress isn't subordinate to the Fed.
s1artibartfast 3y ago
Sure as a hypothetical, but no one really believes that current inflation is driven by Supply. Clearly the FED doesn't. If the Fed thought it was primarily a supply issue it would be printing money to allow cheap loans and industrial expansion
- varispeed 3y ago
  Well, perhaps "no one" is an overstatement. "No one" seems to conveniently exclude those of us running businesses, juggling skyrocketing energy costs, and witnessing first hand the daily impact of supply-side pressures. It seems "no one" in this context refers to those comfortably ensconced in the boardrooms of central banks and the ivory towers of the economically detached, where the nuances of different types of inflation are lost in a haze of aggregates and theoretical models. By all means, let's keep simplifying complex economic phenomena to fit neatly within preferred policy approaches. It's much easier to adjust the monetary supply levers than confront the thorny reality of supply chain bottlenecks and surging commodity costs. After all, those dealing with these realities on a day-to-day basis – the small businesses, the consumers, the workers – they aren't "anyone", are they?
  - s1artibartfast 3y ago
    So let me clairify, supply and demand always exert influence. The question is which is a bigger factor at a given time. Supply constraints can be pushing prices up, but demand pressure can be pushing prices up MORE. If you look at your comodity costs, the question is if less of them are being produced than before, or similar numbers are being produced, but competition is willing to pay more for them. To take a look at something simple like beef, supply keeps going up year over year. Producers in general have a healthy profit margin. However, people are willing to pay more for beef. Would you call this a supply driven problem or a demand problem. You could do the same for energy costs.

dragontamer 3y ago

The Fed Reserve is a giant bank. They literally have no production capability. What do you want them to do, turn into an oil company? The only thing the Fed Reserve can do is move interest rate policy and other indirect-means of controlling M2 money supply.

BurningFrog 3y ago
Right. Congress and the President could do things like that. But since they have to win elections, their incentives are in the opposite direction. Which is why independent central banks were invented.
varispeed 3y ago
Indeed, the Fed often seems like a Pavlov's dog, salivating at the sound of "inflation" and hastily raising interest rates. But as we all know, not every economic hiccup can be cured with the same medicine. Sometimes, it's more prudent to pass the baton to the government and let them address the root causes, rather than reflexively resorting to the same old monetary tricks.
- dragontamer 3y ago
  > salivating at the sound of "inflation" and hastily raising interest rates Please name the times in the last 30 years where the Fed has hastily raised interest rates. Lemme help you out: https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS The majority of the Fed's actions has been to drop interest rates. > rather than reflexively resorting to the same old monetary tricks. The Fed can _only_ do monetary tricks. That's all they're authorized to do.
  - varispeed 3y ago
    Here is a better graph (although it does not contain recent data): https://www.gzeromedia.com/the-graphic-truth-50-years-of-us-inflation-vs-interest-rates https://www.gzeromedia.com/the-graphic-truth-50-years-of-us-... > The Fed can _only_ do monetary tricks. That's all they're authorized to do. When you only have a hammer, everything starts looking like a nail. Not everything can be solved by monetary tricks, but it seems like they just have to do something for the sake of it, regardless if that means tanking the economy. But hey, once economy dies, there will be no inflation! Genius.
    - dragontamer 3y ago
      Your graph shows declining interest rates as well? You're not posting very much evidence that the Fed often raises interest rates. Your graph clearly shows the 15%, 17%+ federal funds rate of the 1970s, and the 5% we're at today, and the 0% we spent the last decade at. The error is clearly that we've overcorrected and dropped rates too low.
      - varispeed 3y ago
        More like it acts like a Pavlov's dog.
        dragontamer 3y ago
        I'm well aware of what psychological conditioning is. But the data you posted does not support your claim.
- dragonwriter 3y ago
  > Sometimes, it's more prudent to pass the baton to the government and let them address the root causes, rather than reflexively resorting to the same old monetary tricks. That’s not the Fed’s choice. The Fed has a mandate to target specific outcomes with a narrow set of monetary policy tools, acting within the existing fiscal framework. Congress can make whatever fiscal interventions it chooses, whenever it chooses; the Fed doesn’t pass the baton to Congress when it feels monetary policy is inadequate, Congress passes it to the Fed by inadequate fiscal policy to acheive the goals Congress mandates the Fed to intervene to correct towards. If you think a situation calls for a fiscal response that osn’t happening, you shouldn’y blame the Fed for not passing the baton, you should blame Congress for not acting. Congress isn't subordinate to the Fed.

s1artibartfast 3y ago

Sure as a hypothetical, but no one really believes that current inflation is driven by Supply. Clearly the FED doesn't. If the Fed thought it was primarily a supply issue it would be printing money to allow cheap loans and industrial expansion

varispeed 3y ago
Well, perhaps "no one" is an overstatement. "No one" seems to conveniently exclude those of us running businesses, juggling skyrocketing energy costs, and witnessing first hand the daily impact of supply-side pressures. It seems "no one" in this context refers to those comfortably ensconced in the boardrooms of central banks and the ivory towers of the economically detached, where the nuances of different types of inflation are lost in a haze of aggregates and theoretical models. By all means, let's keep simplifying complex economic phenomena to fit neatly within preferred policy approaches. It's much easier to adjust the monetary supply levers than confront the thorny reality of supply chain bottlenecks and surging commodity costs. After all, those dealing with these realities on a day-to-day basis – the small businesses, the consumers, the workers – they aren't "anyone", are they?
- s1artibartfast 3y ago
  So let me clairify, supply and demand always exert influence. The question is which is a bigger factor at a given time. Supply constraints can be pushing prices up, but demand pressure can be pushing prices up MORE. If you look at your comodity costs, the question is if less of them are being produced than before, or similar numbers are being produced, but competition is willing to pay more for them. To take a look at something simple like beef, supply keeps going up year over year. Producers in general have a healthy profit margin. However, people are willing to pay more for beef. Would you call this a supply driven problem or a demand problem. You could do the same for energy costs.