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Why does Fed raise rates in response to supply-side caused inflation? (sh.itjust.works)

submitted 1 year ago by 31337@sh.itjust.works to c/economics@lemmy.ml

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I recently read an article about OPEC, and how oil prices will likely rise for the next year or two. The article said this will cause a significant uptick in inflation indicators, so the Fed will likely raise rates.

I can understand raising rates in response to monetary inflation, but it doesn't make much sense to me to raise rates in response to supply-side shocks. It also seems cruel since the goal seems to be to raise rates so more people become unemployed or underemployed so that can't afford to buy gas.

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[–] MasterBlaster@lemmy.world 2 points 1 year ago (1 children)

Or, the legislators can do their jobs. Oh wait, the Republicans have a majority in the house. Never mind.

I am old enough to remember when fiscal policy was a tool in managing economic shocks.

[–] DesertCreosote@lemm.ee 1 points 1 year ago

Yup. Ideally this would be handled through public policy changes, instead of relying on a quasi-private institution that's severely limited in its powers.

But apparently that's too much to ask.