On other blogs...

James Hamilton, who's written more than anyone else on the effects of oil price shocks, argues that the current runup of oil prices is likely to have a small direct impact on the economy; the key is how the rise in oil prices interacts with the rest of the economy. I say the key is how the Fed reacts; will it allow the oil price increases to pass through to consumer prices to produce a one-time jump in the price level, or will it accelerate its rate increases to stabilize prices? Based on recent comments from the Fed, it looks like the latter is more likely.