Bloomberg Surveillance · Thursday, July 23, 2026
Speaker 5 highlights that monetary policy is designed for demand shocks, not supply shocks like rising oil prices. While high oil prices are a headwind, hiking rates to combat them could further slow the economy, complicating the Federal Reserve's job. The focus will be on whether energy prices are embedding into core inflation.
“So when we think about what is pushing inflation potentially higher, it's a supply shock, right, It's about oil, and it's about energy.”
“Monetary policy is there to really address a demand shock, right, So if you have high wages, you know, an overheating economy, and you know you know, wages going up, people are spending money, then yes, high interest rates can certainly help that.”
“But when you have high oil prices as one of the culprits that's pushing inflation higher. Ultimately, what you're saying is that higher oil prices is a headwind to the economy. So therefore, with these higher oil prices, maybe we should hike rates and slow the economy further. Like, it doesn't really match up, right, This is a supply side shock. Monetary policy is generally there for demand side shocks.”