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.
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.
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.
>Massive government spending, funded by new money, caused inflation.
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.
So only in the most narrow sense is it even possibly true that "the US did not have inflation when it did not have fiat money": if you ignore the times when convertibility was suspended, it becomes a slightly more accurate statement, but still not true as it ignores inflation soon after the founding, large deflationary periods in the early and late 1800s, and subsequent inflationary periods prior to WW I. So you have to ignore convertibility suspension and the inflation and deflation in order to argue that there was no inflation or deflation.
The one iron-clad law of "non-fiat" currencies: eventually they will become fiat currencies.
This amply proves my point.
The inflation was a net zero from 1800 to 1914.
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/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.
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.
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.
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.
I tend to agree with your sentiment, but wanted to point out there are obvious issues with our analysis.
I have heard pretty good arguments for the idea that supply and demand are still trying to find a new equilibrium in the post COVID demand shock.
What is the specific criteria that was used to reject transitory?
I tend to be skeptical of anyone who accuses others of lying when there are obviously simpler reasonable explanations: it’s hard to predict how the entire economy will react to turning off the spigot.
That proves that the administration knows it has an optics issue, not that inflation isn’t transitory. Inflation is currently the number one issue on most voters minds.
I don’t doubt that inflation exists. I doubt that a substantial portion of it is related to issues that won’t resolve themselves as the economy renormalizes post-COVID and buying habits return to something like pre-COVID.
It's number one because the admin tried to bury the issue by cliaming it was transitory while many outside DC and the Whitehouse were saying, you can't print money, do the BBB to the tune of trillions (where even Yellen balked) send out stimulus cheques, press for a $15 minimum wage (this should have been gradual), keep rates low AND expect there not to be inflation. But they said, nah, you're being chicken little, relax.
Covid did stress the economy, but it would do the opposite of inflation, if they had not stepped on the gas. It dampened demand. It also put some people out of work and also encouraged some to leave the workforce early.
I agree that many outside of DC jumped on Larry Summers’ bandwagon and are screaming that it was never transitory. But that still isn’t proven. And lots of those people happen to be political adversaries of Democrats, so they have additional reason to try and pin another problem on this president, whether it is his fault or not (which is what your Democrat wish list of things that never happened/passed so can’t affect inflation looks like). I would also note that you are mixing fiscal and monetary policy as if the White House admin had control over either.
Printing money (expanding the M1 money supply at least 4x) and a near zero interest rate environment happened for a decade after 2008 with stubbornly low inflation. That doesn’t necessarily lead to inflation.
COVID didn’t dampen demand for more than a month. It changed where demand was aimed. Money that pre-COVID went to restaurants, concerts, and travel was aimed at different goods like home improvements, in-home entertainment, and crypto/stonks. Inflation didn’t show up when households were thrown $1600, unemployment insurance claims saw richer payouts, and PPP was issued. It happened after buying and spending habits changed when people came out of hibernation and were spite spending.
Again, I’m not saying inflation isn’t transitory. I’m saying I don’t think we can know for sure until the supply-demand mismatches created by COVID lockdowns and behavioral changes have returned to some equilibrium. Only then might we have enough info to be sure, especially because transitory opponents will not set goal posts for the definition.
The only one solid piece of evidence I see for some kind of sustained inflation was the Great Resignation, where people were changing their desires and expectations for work and life. Combined with very little immigration since Trump’s inauguration, and we have not enough supply of low paid labor.
Was it totally preventable? Not likely. Did it have to be so precipitous and ruinous? Nope. They could have come correct and could have adjusted rates and have encouraged people back to work but dialing back the stimulus sooner --slowing the money printer.