Supply shocks weren’t random. They were strategic—and should be seen as ‘supply coercion’ instead, former Fed official says

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. 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. It was a deliberate act, executed for political purposes, using a chokepoint Russia controlled.” The gambit worked, and Russian President Vladimir Putin learned what his strategic leverage can do as he played his card again. As a result, the term shock doesn’t fit, Harker added. “I want to argue for a different word. Supply coercion.” He listed other examples, such as Houthi rebels attacking ships in Bab El-Mandeb, the strait that connects the Red Sea with the Indian Ocean, cutting off a vital shipping lane between Europe and Asia. Supply chokepoints don’t have to geographic. China leverages its dominance over rare earths, while Democratic Republic of Congo, Indonesia and Chile are also major sources of vital minerals. The latest crisis that fits into his framework is Iran’s closure of the Strait of Hormuz that has stopped the flow of one-fifth of the world’s oil supplies. The Fed doesn’t have its own military Looking back on the series of disruptions, Harker said each one looked like a one-off, unrelated event at the time. But the pattern only became visible when the events were stacked together. “I’m not saying we missed it. I’