The runaway inflation of the 1970s was whipped only after Paul Volcker took over as Fed chief, doing the deed but not without precipitating a recession. Powell’s efforts to engineer “immaculate disinflation,” lowering inflation without a recession, have gone well so far, as we’ve been expecting. But the specter of 1970s inflation’s twin peaks must keep him up at nights now that Middle East hostilities raise the risk of resurgent energy inflation.
Globally, inflation has been dropping, with China’s economic woes effectively working to export deflation to the rest of the world. But war in the Middle East could jeopardize that scenario if it disrupts oil supplies.