Ryan Bourne contends that the disagreement about how much of our inflation is caused by supply factors is, at least in important part, a disguised disagreement about what policy rule the central bank should follow. If the Federal Reserve were at all times trying to get as close to 2 percent inflation as possible, any period of excess inflation would necessarily reflect an excessively loose monetary policy. (If it were trying to hit a 2 percent average goal, then some periods of excess would be compatible with a sound policy — but only if and to the extent that there had been an undershoot previously.)
If, on the other hand, monetary policy should aim to produce a stable rate of spending growth, then the central bank should tolerate, and not aim to resist, increases in the price level that result from supply disruptions. Bourne mentions Scott Sumner as the most prominent exponent of this view.
I think Bourne is on the right track here, but I’d add a couple of qualifications. One is that it’s not just spending-targeters who think that central banks should respond to supply shocks differently than to demand shocks — which is why the debate about how much of each we have been dealing with has gone well beyond Sumnerian circles.
The caveat with more immediate practical importance is that even spending-targeters believe that today’s inflation reflects both supply shortages and excess demand. Bourne observes that you could make a case that spending had stayed on target through the third quarter of 2021, which is fair; but we now have the fourth-quarter number, and it’s too high. There were, moreover, indications that it headed too high even before we got the number. All of which helps to explain why Sumner himself has been calling for tighter money for several months now.