Gas prices are already soaring, and are about to get worse, as a result of the invasion of Ukraine. This is a classic supply side shock that will inevitably filter through the entire economy in the form of higher prices. What should the Fed do?
The Fed can’t do anything to address supply problems created by geopolitical crises. Crushing demand won’t solve the problem. The American public will respond to higher gas prices by driving and buying less regardless of what the Fed does with interest rates. The best thing the Fed can do is . . . nothing.