Globally, Covid-19 continues to jam supply chains. As a result, producers can't keep up with demand, pushing prices higher. Such inflation is not new and climate disasters could be 'The Big One.'
Agreed that the Fed should be accommodating of supply side shocks and allow short term inflation to rise above its long term target. The complicating factor right now is that the idea of the Fed actually having an average inflation target and not an inflation ceiling is still pretty new, so that some folks are interpreting events as the Fed having adjusted upward is ceiling or even having abandoned the ceiling entirely in favor of a "hold nominal interest rates down to facilitate fiscal deficits" policy.
Agreed that the Fed should be accommodating of supply side shocks and allow short term inflation to rise above its long term target. The complicating factor right now is that the idea of the Fed actually having an average inflation target and not an inflation ceiling is still pretty new, so that some folks are interpreting events as the Fed having adjusted upward is ceiling or even having abandoned the ceiling entirely in favor of a "hold nominal interest rates down to facilitate fiscal deficits" policy.
Supply shocks have the effect of making the Fed react in a wrong way. Hope this time the Fed is more careful! https://marcusnunes.substack.com/p/state-of-play-july-21