Recent research from the Federal Reserve Bank of Boston indicates that domestic oil production has significantly reduced the impact of energy price shocks on US inflation and employment since the 1970s.
In a report released on Thursday, researchers at the Boston Fed stated that an oil price shock similar to the one currently triggered by the war in Iran would push up the US Personal Consumption Expenditures (PCE) price index by 1.5 percentage points over the following year. In contrast, such a shock would have increased the index by 2.2 percentage points in the 1970s.
The researchers noted that if a similar shock occurred, employment growth would have declined by 1.8 percentage points in the 1970s, but this effect has "largely disappeared in recent years."
The study's authors, including Boston Fed Chief Economist Egon Zakrajšek, suggest this implies that "monetary policy should focus more on the inflationary impact associated with oil shocks, rather than the employment impact."
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