Supply shocks weren’t random. They were strategic—and should be seen as ‘supply coercion’ instead, former Fed official says
A former Federal Reserve official argues that recent supply disruptions should be viewed as strategic 'supply coercion' rather than random shocks. Patrick Harker highlights examples such as Russia's gas supply cuts to Europe and Iran's closure of the Strait of Hormuz. He warns that traditional monetary policy may not effectively address these deliberate actions that create inflationary pressures.
- ▪Patrick Harker suggests that the term 'supply shock' mischaracterizes recent events, advocating for 'supply coercion' instead.
- ▪He cites Russia's gas supply cuts and Iran's closure of the Strait of Hormuz as examples of strategic supply manipulation.
- ▪Harker emphasizes that monetary policy is ill-equipped to handle supply coercion, which poses a national security challenge.
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As the Federal Reserve considers how to respond to the latest inflationary spike, a former central banker has warned that the traditional monetary policy playbook doesn’t apply.Recommended Video In a Substack post last week, former Philadelphia Fed President Patrick Harker argued that the term “supply shock” is a mischaracterization of what’s really been going on in recent years. That includes Moscow cutting off natural gas supplies to Europe in retaliation for sanctions the West imposed after Russia invaded Ukraine. Energy prices soared as European countries scrambled to find alternative gas supplies. “A shock is surprise. A shock is the kind of thing you absorb, smooth out, and move past,” Harker wrote. “What Russia did to Europe’s gas supply was none of those.
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