I agree. What the fed missed here when they originally said transitory was just how long it would take the supply chain to recover. Places in China are still doing zero-covid style lockdowns causing further shocks to supply around the globe. Throw in a war that drove energy prices up, and you have quite a number of existential factors that could quickly go in the other direction.
But if inflation is so high because we made way too many dollars (compared to Europe not making way too many euros), why has the dollar been strengthening against the euro?
Not saying you're clearly wrong, just that there are dynamics that I, at least, am not understanding.
More than that, not only Euro. Currencies in emerging markets and places more disassociated with the U.S. hasn't seen their currencies strengthen in the past year or two against the Dollar too. FWIW, even Bitcoins hasn't strengthen against the dollar in the past year while we are having the inflation.
You'd think that, but data-driven economists were finding low correlations for this kind of (rational) thing specifically for the modern US dollar, which is confusing. Super great PlanetMoney/freakonomics episode on inflation ~last year. If I remember right, this broken state goes back to at least the Obama years, maybe closer to Clinton.
It's a weird state to be in. The rational thing becomes to continue (leverage) the weird situation -- the market expects continued regular high spend for whatever regular big thing of the month/year -- and the irresponsible thing becomes any deviations that risk rocking the boat (ex: risk EU style rallying on austerity becoming a self-fulling prophecy). A lot on inflation concern is triggering FUD loops (sporadic supply chain hits vs YoY spirals), so when we know the market treats USD differently to beginwith, accepting the FUD (by policies that assumes the USD is a weaker currency) is kind of the worst thing policy makers can do. Likewise, most non-US countries rely on USD stability, so probably same thing for their policy makers.
Tried to find -- this was sometime 2020 / early 2021, and from a variety of sources (academic + gov), and pretty sure done by Freakonomics bc it was so weird. Interesting bc casts doubt on basically any expert wrt modern USD vs other currencies.
Yes majority of the inflation is caused by a lack of supply due to covid (lots of things shut down, from microchip manufacturers to international shipping to lumber mills to refineries and produciton hasn't ramped up), and of course crude oil prices increasing.
If you don't think this has any affect on inflation Ive got a bridge to sell you.
