Remember when the Fed's most pressing policy concern was missing their 2% inflation target from below for most of the decade following the financial crisis of 2008-09? The concern never failed to puzzle me in all my time at the St. Louis Fed. I once let out how I really felt:
Well, inflation returned. But not exactly for the reasons I was expecting. What happened?
What happened was COVID-19 and the Russia-Ukraine war. These two shocks were large, disruptive, and persistent. A great many people died. Large parts of the economy were shut down with the hope of slowing the spread of the virus so as not to overwhelm our limited ICU capacity. The leisure and hospitality sector was crushed, and other sectors as well. There was a massive (and highly unusual) reallocation of production and consumption away from services to goods--a phenomenon that has not fully reversed to th