Policymakers should also strengthen prudential regulation and supervision of the financial sector, especially the non-bank system. And, given the greater pressures on corporate profit margins and the superior ability of large firms to navigate supply disruptions, they will need to keep a close eye on firm concentration.
It is good news that, after initially and persistently misreading US inflation dynamics, more Fed officials are now starting to come to grips with the situation. The Fed would be well advised to catch up even faster. Otherwise, it will end up in the midst of a blame game that will further erode policy credibility and undermine its political standing.
Mohamed A. El-Erian, president of Queens’ College, University of Cambridge, is a former chairman of US President Barack Obama’s Global Development Council. He was named one of Foreign Policy’s Top 100 Global Thinkers four years running. He is the author of two New York Times bestsellers, including most recently The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.