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Global Economy Fractures: Are Supply Shocks the New Normal?
21 Mar
Summary
- Gasoline prices surge 30% in a month, the largest increase since 2005.
- Fed seems to miscalculate common denominator of serial supply shocks.
- Former central banker warns of a 'rupture in the world order'.
Gasoline prices have surged by more than 30% in a month, the largest increase since 2005, alongside a nearly 40% rise in diesel prices. This marks the fourth major supply shock in six years, prompting questions about whether these events are coincidences or indicators of long-term economic changes.
Federal Reserve officials, including Chairman Jerome Powell, appear to be misinterpreting these serial supply shocks, potentially underestimating their impact. The central bank's models, built during an era of global integration, may no longer be adequate.
Mark Carney, former central banker, describes these crises as symptoms of a 'rupture in the world order.' This breakdown in global cooperation makes supply chains vulnerable, transmitting shocks rather than facilitating commerce. Nations acting as fortresses become more fragile to economic disruptions.
If supply shocks are indeed a feature of a new global economic disorder, inflation could prove more stubborn than anticipated. The Fed's approach risks keeping interest rates lower than appropriate, potentially exacerbating inflation challenges for American consumers.
