Everyone recognised that exogenous shocks, including Russia’s war in Ukraine and supply chain problems, had accelerated inflation. But expansionary policy settings had left the system highly exposed to these supply shocks. Just as with supply chains, running the economy hot to achieve slightly better short-term results came at a high price. The system then failed under stress.
Fortunately, there has been pragmatic recognition of the problems, and a willingness to change course. At Jackson Hole, Chairman Jerome Powell invoked the legacy of Paul Volcker, who decisively stabilised inflation after the policy errors of the 1970s.