Odd Lots · Friday, August 28, 2026
Austan Goolsbee argued that the Fed's aggressive rate hikes were crucial in preventing inflation from becoming unanchored, despite the 'immaculate disinflation' that followed. He estimated that roughly two-thirds of the initial inflation surge was supply-driven and one-third demand-driven, and that the Fed's actions were essential to ensure that the demand component did not exacerbate the problem.
“I think the aggressive rate hikes, the shoe that did not drop, I think that supply was a major driver of the run up to inflation. And the healing of supply eventually was a major component of the drop to inflation. As long as you say that, as long as you're not trying to have it both ways and both sides, it feels like in that debate, want to have it both ways in the sense they want to blame the run up on fiscal policy, say, but then the, and the fiscal and monetary policy that it was all about stimulus. And then it, then you just say, well, Why did it come down? Then they want to say, no, no, they don't deserve any credit for that. That was all from supply chain healing. I think it was loosely two-thirds supply and one-third demand then.”
“And I think it was critically important That the Fed not lose control. If they had lost the anchor, I think we would have had a heck of a time trying to get rid of the inflation. So I think the Fed deserves a lot of credit.”