The Federal Reserve Can’t Fix the Supply Chain Problem…Or Can They?
Supply chains have been in shambles for the past couple of years. A recent talking point is that the Federal Reserve tightening monetary policy can’t fix supply chains. A tight monetary policy can’t produce more oil or other stuff, as the argument goes. The argument then states that we have an issue of supply and not an issue of demand…so the issue is on the supply “side”, not with the demand “side”. What can the Fed do about the supply side? That’s what the arguer is asking.
I think this argument is a bit confused.
We don’t have an issue of demand in terms of demand being very weak, which was the case in 2009. We do have a demand problem in terms of very strong demand. That might not sound like a problem, but we have to remember that the demand was artificial; the demand came from fiscal and monetary stimulus.
Monetary inflation doesn’t show up right away in consumer prices–there’s a time lag. To think the opposite–that monetary inflation shows up in everyday prices instantaneously- is so absurdly cartoonish that I can’t even begin to address it. That would also explain why a lot of people can’t figure out that inflation is a monetary phenomenon (and are content with blaming everything else, whether it be Putin or corporate greed).
