Stop Calling Them Shocks

A new word for what monetary policy can’t fix.

Russia cut the gas in 2022. We called it a shock. The word was already wrong.

I was on the FOMC then, in my eighth year as President of the Philadelphia Fed. We did what the framework told us to do. Modeled the supply hit, tracked inflation expectations, watched energy futures, tightened. The math kept going sideways anyway. Not because the model was bad. Because the event wasn’t the kind of event the model was built for.

A shock is exogenous. A shock is surprise. A shock is the kind of thing you absorb, smooth out, and move past. 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. And it worked. Europe paid in real money and real cold. Vladimir Putin learned what every strategic actor learns when a lever pulls clean. He did it again.

I want to argue for a different word. Supply coercion.

The pattern is harder to miss now than it was three years ago. The Houthis turned Bab el-Mandeb into a daily problem for global shipping, with the explicit aim of disrupting commerce until political demands were met. China holds roughly ninety percent of global rare earth refining capacity and has tightened export controls in step with semiconductor disputes. The Democratic Republic of Congo produces around three-quarters of the world’s cobalt. Indonesia, more than half the world’s nickel. Chile, the largest share of copper. None of those concentrations are random. None of them are temporary. And every one of them is now visible to people whose job is to think about leverage.

Most pressing right now is the Strait of Hormuz. Roughly twenty percent of the world’s oil moves through that channel. Iran spent four decades building the capability to close it. For the past two months, it has effectively been closed. Brent near one hundred dollars a barrel, WTI in the mid-nineties, premiums priced into every cargo that still moves. The chokepoint did not threaten. It closed. The capability didn’t sit on the shelf. It got used.

This is what coercion looks like. Not a single event. A standing capability that prices itself in.

The hard thing to admit in those years was not any single disruption. It was the slow recognition that we were no longer dealing with a sequence of unrelated events. COVID supply chains. Russia. The Houthis. Rare earths. Each one arrived with its own briefing. Each one looked like a one-off until you stacked them up.

I’m not saying we missed it. I’m saying the framework we were trained in, supply shocks as random draws from a stable distribution, was the wrong framework for what was actually happening. The shocks weren’t random. They were strategic. The actors generating them were learning.

Monetary policy has nothing to say to that.

Interest rates work on demand. They cool an overheating economy by raising the cost of borrowing, slowing investment, dampening hiring, eventually bringing demand into balance with supply. That is the tool. Used well, it is the most powerful instrument we have for managing demand-side imbalances.

It doesn’t move oil through a closed strait. It doesn’t refine rare earths or unfreeze a foundry under blockade. A federal funds rate at three and three-quarters percent doesn’t produce one additional barrel of crude or one additional kilogram of cobalt. The Fed isn’t a logistics company. It isn’t a defense department.

When supply is being deliberately constrained by a strategic actor, the prices that result aren’t a Fed problem. They are a national security problem that shows up as an inflation problem.

One more thing belongs in the picture. The United States is now also a source of deliberate supply disruption. Tariff policy, by design, raises the cost of certain imports for political and strategic ends. The mechanism is different from what Russia did or what Iran has done. The structural fact is the same. Prices are moving because someone in a position of power has chosen to move them.

That isn’t a supply shock either. It’s supply policy.

So the Fed now sits between two flavors of deliberate disruption. Coercion arriving from outside, coercion generated at home. Both political. Neither responsive to the federal funds rate.

In 2022, when Russian gas stopped flowing, we did what the framework told us to do. We tightened. We watched. We waited for the shock to pass through.

It did pass through. But the lever that produced it didn’t go away. Russia learned. Iran took notes. China was already three steps ahead.

The word “shock” assumes the world resets. The world has stopped resetting.

That is the diagnostic. The prescription is for future posts