Source: Fortune.com
Summary
Former Philadelphia Fed President Patrick Harker argues that the term “supply shock” doesn’t accurately describe recent events, such as Russia cutting off natural gas supplies to Europe or Iran’s closure of the Strait of Hormuz. Harker suggests the term “supply coercion” instead, as these events are deliberate acts by strategic actors, rather than random shocks. He notes that monetary policy can’t address supply coercion, which is a national security issue. Current Fed officials, such as Boston Fed President Susan Collins and Fed Governor Chris Waller, are describing their dilemma with stubbornly high inflation as a series of “transitory shocks,” but Harker warns that this framework is outdated.
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Patrick Harker, former Philadelphia Fed President, reframes recent events as “supply coercion” rather than “supply shocks.” He argues that these events are deliberate acts by strategic actors, rather than random shocks.
Fed officials, such as Susan Collins and Chris Waller, are still using the “transitory shock” framework to describe their dilemma with high inflation.
The Fed is caught between coercion from abroad and coercion generated at home.
The world has stopped resetting, and the traditional monetary policy playbook doesn’t apply.
Author: Evan Null
