{"text":[[{"start":5.65,"text":"The writer previously served as vice-chair and governor of the Federal Reserve"}],[{"start":11,"text":"Before the Iran war, most Americans were finally catching a break at the petrol pump. That’s over now. Since February, petrol prices have jumped from under $3 to over $4.50 per gallon and diesel is up nearly 50 per cent to over $5.60. Farmers face fertiliser price increases of 25 to 50 per cent. The economic shockwave from the closure of the Strait of Hormuz has disrupted 20 per cent of global oil and natural gas shipments and as much as 30 per cent of fertiliser shipments. Even if the strait reopened tomorrow, it would take months for supply chains and prices to normalise."}],[{"start":51.2,"text":"This is putting the Federal Reserve in a tough spot with the highest number of dissents in over 30 years. At its recent meeting, the Fed issued the same language on interest rates it has maintained since January, when it expected to cut rates further this year. This provoked no fewer than three dissents. Cleveland Fed president Beth Hammack explained, “I see this clear easing bias as no longer appropriate given the outlook.”"}],[{"start":77.05000000000001,"text":"Maintaining this easing bias as the Iran war drags on is consistent with a “look through” approach to the oil price shock. The classic look through playbook treats the oil price rise as temporary and keeps monetary policy on its previous course as it waits for the shock to fade. In normal times, that’s reasonable. If inflation is near its 2 per cent target, and a supply shock is clearly a one-off, shortlived disruption, there’s no need to keep policy for the whole economy tighter than otherwise to fight a problem that will resolve on its own."}],[{"start":109.4,"text":"But these are not normal times. And this is not the Fed’s first rodeo. Russia’s 2022 invasion of Ukraine sent commodity prices surging on the heels of wave after wave of Covid-era supply disruptions. Later that year, in my previous capacity as vice-chair of the Federal Reserve, I noted: “Even when each individual supply shock fades over time and behaves like a temporary shock on its own, a drawn-out sequence of adverse supply shocks . . . is likely to call for monetary policy” to be tighter than it otherwise should be."}],[{"start":144.10000000000002,"text":"That logic holds true today. The Iran war oil shock is not occurring in isolation; it is the latest in a series of self-inflicted supply disruptions that began early in 2025. US tariffs have risen fivefold, adding nearly one percentage point to inflation. An immigration policy contraction in labour supply growth has pushed monthly job creation sharply lower. Constraints have now accumulated across goods, labour and energy."}],[{"start":171.35000000000002,"text":"The cumulative damage is plain to see. In the months before the Iran war, core inflation in the US had been accelerating, with the latest reading at 3.2 per cent, while many other advanced economies had brought inflation closer to the 2 per cent target. American consumers were already squeezed by higher grocery bills driven by the tariffs, rising electricity rates, and soaring health insurance premiums."}],[{"start":197.75000000000003,"text":"The risk is not just the scale of the current shock, but the cumulative effect of the series of inflation shocks. Consumers don’t expect tariff refunds to result in lower prices. They expect higher future inflation due to the jump in petrol prices. When people expect inflation to persist, it tends to change pricing behaviour by businesses, and a temporary shock becomes a persistent one."}],[{"start":223.50000000000003,"text":"The post-Covid inflation lesson that the Fed learned painfully and late is that a sequence of supply shocks, each one seemingly transitory on its own, can compound into persistently higher inflation when demand outstrips constrained supply. Last year, Fed officials argued they could safely look through the tariff-driven inflation and continue cutting rates. Maintaining an easing bias today is much riskier, with the energy price shock landing on top of the earlier tariff shock amid stubbornly high inflation. The incoming chair would be wise to consider carefully the hard-won lessons reflected in the recent dissents."}],[{"start":268.3,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1778137232_3112.mp3"}