In 2020, Covid shut down global supply chains and sent inflation surging. In 2022, Russia’s invasion of Ukraine triggered a global energy and food price shock. U.S. tariff policies in 2025 disrupted global trade and helped to stall a long-awaited retreat in domestic inflation. Now, in 2026, we have war in the Persian Gulf. Commerce has frozen in the Strait of Hormuz — and the script looks eerily familiar.
Gasoline prices are rising — up more than 30% in a month, the largest increase in such a short span since Hurricane Katrina in 2005. Fertilizer is stuck at Middle East export hubs, potentially disrupting planting seasons from Iowa to Africa. Stock prices are falling. Economists are again talking about recession risks. Diesel is up nearly 40%, topping $5 a gallon — a serious problem for an economy where trucks, ships, trains, and farm equipment all run on it.
Four supply shocks in six years. At some point, you have to stop calling it bad luck.
It is time to start asking whether supply shocks are coincidence – a series of uncorrelated, unfortunate events – or whether something larger is going on that has changed the economic landscape for the long-term. If something has changed, then we need to start rethinking our models for how business and the economy work.
A pattern the Fed has missed
The need for a rethink starts at the world’s most consequential economic institution: The Federal Reserve. When asked at a press conference this week to make sense of serial supply shocks, the U.S. central bank chairman, Jerome Powell, seemed to miscalculate the common denominator. “I don’t know that the world has changed in a way that there will be more supply shocks,” he said.
In central bank parlance, the Fed still seems to think it might be able to “look through” yet another one of these events.
That’s a dangerous world view — and it’s one the Fed has reached before. After Covid, the Fed called inflation “transitory” and was slow to raise interest rates. Tariffs – a manmade form of supply shock designed to reorder global trade and raise prices – have been written off as another one-off event, even though they keep coming back. Now, facing the Hormuz disruption, Powell held out a possibility that this too shall pass, and inflation might revert to a norm that may no longer exist.
If the Fed is wrong again, the consequences for American consumers — already living with inflation above target for five straight years — could worsen.
A rupture, not a run of bad luck
The Fed is a large, inertial institution. It takes time to incorporate deviations from recent norms into its models. Officials tend to want to avoid getting ahead of themselves; they lean on established thinking.
Now is time for the Fed to start updating its thinking about supply shocks.
Repeated rounds of tariffs are human choices, as are wars in Iran and Ukraine, not some storm that blew in from nowhere. The Covid crisis certainly did have a large random element to it, but it also had common global denominators – it was propagated through a global order that didn’t respond well to the need for collaboration and containment required by a viral intruder.
Mark Carney, a former central banker who is now Prime Minister of Canada, put his finger on something important in comments in Davos early this year. These crises, he said, are symptoms of a “rupture in the world order,” a breakdown in global, rules-based cooperation and norms that in the past facilitated global integration and commerce.
Over decades, multinational businesses built and operated global supply chains that depended on cooperation and integration to function properly. When cooperation breaks down, the supply chains become vulnerable. They are now transmitting shocks rather than just facilitating commerce. Tariffs and war are examples, as was the chaotic global response to the Covid virus and its aftermath.
“A series of crises in finance, health, energy and geopolitics have laid bare the risks of extreme global integration,” said Carney, a long-time friend of Powell. “More recently, great powers have begun using economic integration as weapons, tariffs as leverage, financial infrastructure as coercion, supply chains as vulnerabilities to be exploited.” The result: Nations increasingly see themselves as fortresses, which counterintuitively makes them more fragile to economic shock.
Remarkably, Carney didn’t call for a return to the old order of global cooperation that, among other things, held down inflation and lifted billions of humans out of poverty in the past quarter century. A realist, he instead tried to see a way through a new era of fracture by seeking to band together with others like Canada caught in the middle of a deepening disorder.
An indefensible posture
The Fed’s models, and its way of thinking, were built during a period of global integration, stable supply chains, and cooperative international norms. As that world frays, the central bank runs the risk of making mistakes. It needs to develop a coherent, updated view of how the global economy is changing.
If supply shocks are a feature of a new global economic disorder, then inflation could prove more stubborn than the Fed’s old models project. That, in turn, could lead the central bank to keep interest rates lower than they ought to be, based on an expectation that inflation will revert to norms that no longer exist. That could make the stubborn economic challenge of inflation even worse.
The Fed was right to keep interest rates unchanged at its policy meeting this week. Expecting each new crisis to be a one-off event is no longer a defensible posture. We may be discovering that nagging inflation is a function of the rupture that Powell’s old friend Carney described just a few weeks earlier.
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