Thread by @AndreiSterescu

1/5 A recent research note by the @AtlantaFed shows that the removal of price controls and the restarting of production lines after WWII unleashed a wave of pent-up consumption demand which culminated in a short-lived #inflation spike of 20% in 1946-1947.

atlantafed.org/research/publi…

2/5 The @federalreserve subsequently implemented a series of contractionary policies that mostly involved an increase in reserve requirements and the discount rate, with inflation stabilising again back at 2% in 1949. Plenty of parallels with the current situation.

3/5 The @federalreserve - and most other major CBs - think that, similarly, inflation dynamics after the #COVID19 crisis and the recent volatility in prices can be attributed to a host of temporary factors linked to a burst of pent-up demand and supply-side bottlenecks.

4/5 Check out this great article by @MESandbu arguing that disruptions in global supply chains resulted in a "bottleneck economy" and how current inflationary pressures could actually turn deflationary once supply adjusts.

ft.com/content/8daa27…

5/5 While price pressures might last for a while longer as supply constraints take their time to adjust, CBs should fight the urge to taper. If CBs cede to demands for tightening after months of arguing that current inflation is transitory, their credibility is on the line.