Oil just broke $100 a barrel.
asserted
Oil → break → 100
Diesel has surged past $6 a gallon in parts of the country.
asserted
Diesel → surge → country
Yet this week the Federal Reserve responded to the pain American families are feeling at the pump by raising interest rates for the first time since 2023 by a quarter of a percentage point.
asserted
families → respond → point
There’s just one problem: the Fed didn’t cause this inflation, and higher interest rates won’t fix it.
asserted
rates → ’ → it
This isn’t America’s post-COVID inflation, topping out at over 9% in 2022, after the Fed’s rates were close to zero for two years.
asserted
rates → top → years
Price increases are concentrated in the energy sector, and in sectors that use energy.
asserted
that → concentrate → energy
That’s because fewer tankers are moving through the Strait of Hormuz, and Iran-backed drone strikes have knocked out pumping stations for Saudi Arabia’s 750-mile East-West pipeline, forcing its closure.
asserted
strikes → ’ → closure
At the same time, the Houthis, with Iranian support, have imposed a maritime embargo in the Bab el-Mandeb Strait.
asserted
Houthis → impose → Strait
This has choked off another critical shipping lane while the Strait of Hormuz remains effectively shut amid the broader U.S.-Iran conflict.
asserted
Strait → choke → conflict
That is why prices of energy, particularly oil, diesel, and gasoline, are rising.
asserted
prices → rise → energy
It has nothing to do with how much money is circulating in the American economy.
asserted
money → have → economy
Economists call this a supply shock, and it is fundamentally different from the kind of inflation the Fed’s tool kit was built to address.
asserted
kit → call → inflation
Interest rate hikes work by cooling demand, making borrowing more expensive so consumers and businesses spend less.
asserted
consumers → work → less
This can rein in inflation when the problem is too much money chasing too few goods.
asserted
money → rein → goods
It is counterproductive when the problem is too few barrels of oil reaching the market because a pipeline is on fire and a strait is closed.
asserted
strait → reach → fire
Fed Chairman Kevin Warsh said on Wednesday, “The Fed has a role in sustaining the economic progress happening in America right now, and the rising opportunities that come with it.
asserted
that → say → it
Those who are least well off have the most to gain from a durable expansion, a solid labor market, and stable prices.”
asserted
who → have → expansion
He’s right that Americans without financial assets or home equity benefit more from price stability than from asset returns.
asserted
Americans → ’ → returns
But those same Americans are also the first to lose their jobs or their hours if higher rates slow hiring and business investment, and many rely on credit card debt.
asserted
many → lose → debt
Raising rates doesn’t help them if it costs them their jobs.
asserted
it → raise → jobs
Furthermore, the Fed can raise rates all it wants, but the rate increase will not produce a single additional barrel of oil out of the Middle East.
asserted
increase → raise → East
Oil is not the only nonmonetary force pushing prices higher.
asserted
Oil → push → prices
The Trump administration is trying to make America more self-sufficient by shrinking imports from other countries through tariffs, and reducing available visas for foreign workers.
asserted
America → try → workers
Tariffs raise prices on imports, and some of the cost is passed through to consumers and businesses rather than being absorbed by the exporter.
asserted
some → raise → exporter
You cannot cure a tariff increase by raising the cost of a car loan or a mortgage.
asserted
You → cure → loan
Agriculture, construction, and hospitality all use immigrant labor, and when guest workers can no longer travel to America to work, wages rise in those sectors, along with the prices of the goods and services they produce.
asserted
they → use → goods
No rate hike puts a single additional worker back in the field.
asserted
hike → put → field
Warsh said the Fed has to act because its mandate is price stability, and underlying inflation wasn’t cooling as expected.
asserted
inflation → say → ?
Price stability is a legitimate and important goal, and Fed officials are required to watch inflation expectations closely.
asserted
officials → require → expectations
If businesses and workers start assuming persistent price increases and build that assumption into contracts and wage demands, a temporary shock can turn into something more durable.
asserted
shock → start → something
But preemptively slowing the entire economy by raising the cost of Americans’ mortgages, credit card payments, car loans, and business lines of credit risks doing economic damage now in exchange for insurance against a hypothetical problem later.
asserted
slowing → slow → problem
Supply shocks call for supply-side fixes, including energy policy that gets oil moving again, trade policy that considers tariff costs, and an immigration policy that grants more H-2A visas for agricultural labor to address shortages.
asserted
that → call → shortages
Monetary policy cannot substitute for any of them.
asserted
policy → substitute → them
America’s inflation is due to a supply problem that starts in the Middle East and ends at the gas pump.
asserted
that → start → pump
Prices are set on expectations of future production, and when oil can flow again, prices will go down.
asserted
prices → set → production
Diana Furchtgott-Roth, former acting assistant secretary for economic policy at the Department of the Treasury, is a distinguished fellow at the Energy Policy Research Foundation.
asserted
Roth → act → Foundation
The Aporia
