Recent economic trends point to the possibility that the Federal Reserve will have to grapple with sudden shocks to the supply of goods and commodities in the coming years.

U.S. Federal Reserve officials feel they need to reconsider the key elements around both jobs and inflation in their current approach to monetary policy, given the inflation experience of the last few years and the possibility that supply shocks and the associated price increases may become more frequent in the years ahead,

But, as the environment has changed significantly since 2020, the FOMC must evolve and respond accordingly. Longer-term interest rates are significantly higher now, driven largely by higher real rates – and higher real rates may reflect the possibility that “inflation could be more volatile” than it was in the 2010s.