That is one idea that I thought of just the other day, maybe yesterday.
Inflation got out of control in the United States in the 1970's because the Fed was behind the curve, as the story goes.
Now it just seems different. If the Fed was ahead of the curve, it may not make a difference fighting inflation.
A few decades ago, the United States was the undisputed most powerful country in the world, especially economically. For the most part, they were price setters.
They set the price, because they built everything.
Today, it is the other way around. The United States is the price taker, and not the price setter.
Globalization, technological advance, means all these inputs come for far away lands. That is how the world works today.
I think before, the story was, that US inflation was exported. Now it seems that US inflation is imported from aboard.
I truly thought that US inflation was transitory, until this war broke out, and the sanctions happened.
This bifurcation of the world economy or supply chains, will drive up the price, which means worldwide inflation inside that supply chain. But the source of this inflation could be anywhere, and since everyone is still trading with each other, the vicious inflationary circle starts. Just like what you said in your post.
Not sure if the Fed raising interest rates like Volker did can break the back of inflation this time.
The United States when Volker was Fed Chairman, they were that big of a colossal economy. Now if Janet and Jerome raises interest rates, so what? China is still paying full price, which means the United States must pay that price too (likely more because that supply chain centered around the United States probably will be more expensive).
In other words, in the past, since the US economy was that big, they could control prices inside, and as an effect, also outside of America. Today, they cannot do neither, because the price is set outside of America.
Hence, the Americans today are price takers and not price setters. American inflation can be kind of bad this time.
It seems on the verge of getting out of hand in Europe.
Got to bring Merkel back. LOL.
