Here's a basic answer to this frequently asked question, courtesy of Rob Kaplan, who used to have the same job: "So let' | Hanami
Here's a basic answer to this frequently asked question, courtesy of Rob Kaplan, who used to have the same job: "So let's talk about what a supply shock is, and I'll give you my own two cents on it. If you have a supply shock and it lasts for two months, then I think the knee-jerk reaction if you're at the Fed is, "Let's just wait and do nothing, and we'll look through it."
"If you have a supply shock, on the other hand, that goes on for six, seven, eight months and maybe it could go on for a lot longer, what happens is it begins to bleed into 30 or 40 items, and then a year or two later you forget how the inflation even started. So that's why those who say supply shock, what can a Fed funds rate increase do about it?"
"Well, one thing it can do is prevent the bleed or slow the bleed to 30 or 40 other items. And Warsh even commented on that, and he was right to do it in the press conference. We can't stop the oil shock, but we can slow down maybe the transmission to other items. And I do think they've realized at this point they need to be focused on doing that."