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Comment by mediaman | Hacker News Reader

I think it's unfair to pin this on the Fed.

Most of the inflation appeared to come from a mix of massive fiscal stimulus and supply chains that got blown up by the pandemic, so large increases in demand coupled with decreased capacity to supply, driving up pricing for capacity.

Arguably increases in some asset prices could be attributed to QE, but the story doesn't really hold water for CPI ex-housing.

As an aside, I don't even think this course of events was a mistake. It was much better to have some inflation from huge stimulus but avert economic disaster, and then deal with the inflation through the relief valve of higher interest rates. There is no relief valve for total demand destruction.

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While I agree that fiscal stimulus, which drove excess demand and thus shortages was the primary culprit in inflation, the Fed deserves more blame due to having the ability to unilaterally make the decision to intervene, yet choosing not to.

The bar for getting something passed in congress is much higher. Powell was also publicly requesting congress to pass a second (or was it third?) massive stimulus after the economy was already on a strong path to recovery. Since then he's declined to comment on fiscal policy, even when it was clear that fiscal policy was driving inflation.

https://rooseveltinstitute.org/2021/02/25/fed-chair-powell-m...

Don't forget the Ukraine war which pushed oil and natural gas prices through the roof as travel really started to open back up. Since energy is an input to most of the economy 50-100% increases in pricing will have a significant effect, and so will 50-100% decreases (though market prices fall more slowly than costs allowing higher profits).

https://www.macrotrends.net/2500/crude-oil-vs-natural-gas-ch...

People who think quantitative easing is "money printing" haven't looked at how reserves work (and how circulating money is created through loans) or at the correlation of QE/QT on either inflation or deflation in the US, the EU, or Japan. Now it does increase liquidity and that may increase asset prices slowly.

https://research.stlouisfed.org/publications/economic-synops...

The Fed did keep rates a bit low for a while, they will also keep them a bit high for a while since they are "data driven" and the data always lags. We seem to be lucky this time that delayed infrastructure stimulus (not the pandemic business handouts) is offsetting decrease in credit, but it's unlikely "this time is different" so we'll almost certainly have a recession to kill inflation expectations and a "banking event" that causes Fed rates to fall.

Interestingly, the treasury spend down caused by debt ceiling shenanigans seems to have lowered long term rates for a few months which also helped loans/spending in the short term.

I remember energy providers here in the UK went under way before Ukraine war because of electricity price spike. When war started we had another spike but it was short and prices are now at the same level as before the war but still higher than in July 2021.

Some data here: https://www.ecb.europa.eu/pub/economic-bulletin/focus/2022/h...

Why is the narrative everywhere still that prices are higher because of the war in Ukraine?

Well, it may be political, but the reason that European gas prices rose dramatically in Dec 2021 (there were many articles in Bloomberg and FT) was due to Gazprom restricting supply... it's almost as if they new something? Maybe they were reading the NYT.

https://www.nytimes.com/2021/12/23/us/politics/russia-ukrain...

"European prices skyrocketed when the dominant external supplier, Gazprom, started to withhold supplies in Q4 2021."

I really appreciate your Chart A where one can see that prices went back down until the war started and then spiked 1.5x higher and that only because of a couple of quite mild winters. It's certainly reasonable to make the case that investment in Oil and Gas fell quite a bit from 2019 (economists were expecting a recession in 2020 before COVID), but that didn't drive rapid reductions in supply and historically high prices... a war did.

Look at gas and electricity prices. They started rising way before Q4.

When we were all shaking about electricity prices mid year 2021 no one ever mentioned anything about Russia, Ukraine or Gazprom as being the sole contributor.

"The rise in costs has been put down to a number of factors, including a cold winter earlier this year which left gas stocks depleted, as well as refineries in the US being shut down by Category 4 Hurricane Ida, according to industry analysts.

High demand for liquefied natural gas from Asia and a drop in supplies from Russia have also contributed to the price rise."

https://news.sky.com/story/why-is-a-rise-in-gas-prices-pushi...

I guess you're saying that oil at $100/barrel makes sense and I wouldn't disagree... That's about where it's been +/-$20 except during the crazy swings caused by the war and pandemic (remember it went NEGATIVE) events. Those don't really effect electricity prices so much, though. The gas market, however, is permanently altered.

You weren't going to get to %150 higher prices for gas (which drives marginal electricity prices) in Dec 21 or %200 higher prices for gas in Feb 22 without Gazprom supplies being cut. The winter before was plenty cold in 2021 (coldest since 2010) and it only caused a %60 higher price for electricity and 30% higher for gas for a month. We're over a year into Ukraine and gas is stable at 50% higher than it's start which was the previous temporary winter peak. It'll go crazy again this winter if it's cold, but that will also be transitory and probably come back down to a 50-60% higher new normal barring "events".

Because the true reason is political, and politicians are the ones writing the narrative.

> ... a mix of massive fiscal stimulus and supply chains that got blown up by the pandemic

If pandemic-related supply chain issues are really a major factor in the inflation we're seeing, with time we'd expect most prices to be returning to pre-pandemic levels, or at least close. I don't think I've heard anyone seriously suggest that could happen. Instead, we're celebrating a small reduction in the slope of a line that has been and continues to be moving up at an alarmingly steep angle.

And while you could argue that fiscal stimulus isn't a direct action from the fed, it's certainly related and can ultimately be attributed to the same group of delusional people in the driver's seat.

A major factor is missing - lack of competition due to decades of unrestrained mergers allowed large price increase sending corporate profits to record levels

Some of the volatility can be blamed on the Fed; It's a major component of the money supply that is less bureaucratic than congress.

So, when Covid shutdowns hit the US, it could react (with its largest balance sheet ever), but it also could have reacted to valuation increases, it could have reacted to first and second round stimulus packages by reducing its equity holdings, it could have reacted to positivity rates and vaccine uptake.

Though the lack of the legislative and executive acting in the US can be blamed as well; That could mean, incentivizing baby boomers to stay in the workforce, increasing immigration (where food, lawn maintenance, retail industries are having worker shortages as workers have moved to warehouses, technology, and delivery), or the child tax care credit helping parents stay in the workforce (possibly with more linkage to employment), and lastly temporary tariffs where possible to reduce consumer demand for imports (via ~ taxes).

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