Price of goods became high under Covid -19 Pandemic when people got cash support and purchased items online. That is a demand side picture of US inflation. Chinese lockdown and US port bottleneck strains (Berger, 2022, January 28) brought supply chain disruption (Shih, 2022, July 22), which is a supply-side picture to price increase and inflation.
There has been increasing worries including Senator Elizabeth Warren and economist John Cochrane, saying Federal Reserve is not fully equipped with a right tool in this new type of inflation (Varadarajan, 2022, February 19). Mr. Cochrane pointed out that softening demand with high interest may have limit as compared to supply expansion.
Senator Elizabeth Warren blamed Putin’s invasion to Ukraine for US inflation (Warren, 2022, July 24). She described as US could have been in a full economic recovery until Fed began to increase interest rate. Oil price has been a big contribution to inflation, which she highlighted. She warned that one medicine in kitchen cabinet does not cure all illnesses, meaning high interest is not a remedy in this type of inflation. She was looking at supply side of inflation.
As Wall Street Journal correspondent for Federal Reserve described in the newsletter (Sparshott, 2022, November 5), Jerome Powell emphasized price stability prior to soft landing or even recession in this juncture. Thus, Jerome Powell implied that there will be longer tightening with lower hikes, possible half percentage point. Fed has a tool to tame demand side of inflation.
If Putin ends war in Ukraine and China loosens its lockdown policies for Covid spread, will everything go back to normal? Maybe. Realistically, however, this may result in long inflation as there is no coordinated efforts to tame inflation, at least not materialized yet.