What should a central bank do when supply shocks keep coming one after another?
Peter Orszag, Chief Executive Officer and Chairman of Lazard, joins Kathleen Kingsbury, Opinion Editor at The New York Times, to explain why the textbook advice to look past a supply shock carries less weight after six shocks in six years. He describes how lagged effects, from tariffs to fertilizer constraints, can show up in prices a year or more later, and why central banks need a closer sector-by-sector view of inflation.
Drawing on advice he received when he became Director of the Congressional Budget Office,...
What Peter Orszag said
Written from the verified transcript and checked against it. Every figure links to the moment it was said.
Peter Orszag argued that the Federal Reserve must adapt to a new supply-side era where repeated shocks, six in six years, make passive responses untenable. He said the Fed should analyze sectoral supply shocks with lags, predicting significantly higher food prices next summer due to fertilizer constraints. He endorsed the Fed's recent rate hike and said the risk balance tilts toward further increases. On Fed independence, he predicted Kevin Warsh will surprise to the upside, citing Volcker and Burns as models. He criticized Germany's nuclear phase-out as premature and advocated an all-sources energy approach like China's, noting renewables build-out remains strong in Texas. He declined to name a crisis playbook leader, but speculated on AI financial distress, questioning whether AI labs would be deemed too big to fail and whether a private sector solution like JP Morgan's could emerge.
Key takeaways
The Fed should respond to repeated supply shocks as ongoing inflation, not ignore them as one-time price level changes.
Food prices will likely rise significantly next summer due to fertilizer constraints, requiring sectoral Fed analysis.
Kevin Warsh will likely be more independent as Fed chair than anticipated, following Volcker's model over Burns'.
3:16You know, is that actually achievable, the idea of building in more redundancy everywhere in kind of the current political environment, or is it simply something that today's politics can't act on?
7:30And, you know, who in the government today do you think you would trust to run that playbook?
You've talked about monetary policy a couple of times. You've written elsewhere that the AI CapEx is funded through cash flow and private credit rather than bank lending. But if monetary policy has weaker traction now, as you're arguing, what actually stops an inflation surprise once it starts, if not the Fed?
I think it does have to be the Fed, but maybe I could talk about the consequences of this new paradigm, the new supply-side era we're in for monetary policy. Because historically, if you go back to your Econ 101 kind of intro Econ, the argument was a supply shock like the 1970s oil shock hits, that the central bank shouldn't respond to it. And you often hear some administration officials making this kind of argument. It's a one-time price level change. It doesn't affect ongoing inflation. It just raises the price level, and therefore, since the Fed is focused on ongoing inflation and not one-time changes in the price level, they should just kind of not do anything about it and let it kind of play through.
Okay, but if what you're doing is you're seeing a series of these things and they're hitting one after another after another, then that sure looks a lot like ongoing inflation. Because it's not just one thing, but back to my point earlier, there's, you know, we've had six of these shocks in six years. And so I think the argument that the Fed or the ECB or any other central bank should just passively say, 'Oh, that's a supply shock, don't worry about it,' is much weaker today given this new environment that we're in than it was 20 or 30 years ago.
Which is to say, I think the Fed needs to get pretty good at the point I was making, which is if you're looking at inflation today, look at the supply shocks that were hitting a year or two ago and make sure you're playing through the consequences. Let me give you one specific example. The Fed targets core inflation, which excludes energy and food, but those things do seep into underlying inflation. I think it's very likely that we're going to see significantly higher food prices next summer in an almost predictable way because of the constraints on fertilizer and other inputs into the agricultural cycle that we already know are happening. And you can kind of almost inevitably see that impact. And that's the point, which is if you want to be evaluating monetary policy and inflation, you have to get really granular at a sectoral level on all these shocks hitting the economy because they have lags in terms of when they show up in prices. And you've got to be playing that game even as a central bank.
As I said, inflation has remained elevated in the way that we expected, and I think it was appropriate for the Fed to respond to that by raising rates at the last meeting.
I think it, I think from here, a lot will depend on, you know, the degree to which these ongoing supply shocks hit, but that the weight of the evidence or the risk balance tilts towards probably needing higher rates in the future also.
I guess I'm asking these questions because we are also experiencing a Fed that has had more pressure from the White House and other legislative bodies than perhaps ever before. So, I actually think what I'm asking is more of a step-back question. You know, your prescription for all of these questions is kind of a diversified abundance, which Ezra Klein will be accepting any fees for that use, more capacity spread across more suppliers and geographies rather than self-reliance, excuse me. But you also talk about how long it took for Germany to adapt after Russian gas was cut off. You know, permitting reform is stuck in the US Senate right now until a vote after the midterms. You know, is that actually achievable, the idea of building in more redundancy everywhere in kind of the current political environment, or is it simply something that today's politics can't act on?
7 more exchanges in this transcript
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Orszag, P. (2026, October 15). Peter Orszag on Why Supply Shocks Change the Fed’s Playbook, Plus Energy & AI Risk [Interview transcript]. The Economic Club of New York. CEOInterviews.AI. https://ceointerviews.ai/interview/3088492/
MLA
Peter Orszag. "Peter Orszag on Why Supply Shocks Change the Fed’s Playbook, Plus Energy & AI Risk." The Economic Club of New York, 15 Oct. 2026. Transcript, CEOInterviews.AI, https://ceointerviews.ai/interview/3088492/.
BibTeX
@misc{orszag2026_3088492,
author = {Peter Orszag},
title = {Peter Orszag on Why Supply Shocks Change the Fed’s Playbook, Plus Energy \& AI Risk},
howpublished = {Interview transcript, The Economic Club of New York. CEOInterviews.AI},
year = {2026},
month = {oct},
url = {https://ceointerviews.ai/interview/3088492/},
note = {Speaker-attributed transcript with timestamps}
}
