Jackson Hole’s missed lesson

AT THEIR annual symposium in Jackson Hole, central bankers professed full commitment to fighting inflation, while lamenting that the world has become a much more difficult place for monetary policy-making. There was virtually no critical assessment of how the macroeconomic policies of the past decade contributed to the current problems. Central bankers admitted they underestimated the inflation surge – how could they not? But they blamed an adverse external environment the way you would blame the weather: something outside your control. Pandemics, wars and supply chains failures, they argued, plunged us into a world where reducing supply-driven inflation through monetary policy becomes more difficult and painful.

Federal Reserve chairman Jerome Powell, to his credit, admitted that US inflation has also been fuelled by excess demand, not just adverse supply shocks.

But to reduce the risk of further macroeconomic problems down the line, we need a more comprehensive assessment of how we got here. Some deeper self-reflection is needed, given that less than a year ago the same central bankers assured us the inflation surge was ‘transitory’ and supply problems would quickly self-correct.