REVISITED: How Worried Should We Be About Rising Inflation?; & BRIEFLY NOTED: For 2023-02-07 Tu
REVISITED: How Worried Should We Be About Rising Inflation?; & BRIEFLY NOTED: For 2023-02-07 Tu
Looking back on my debate late last summer with Josh Hausman on whether controlling U.S. inflation is likely to require a substantial recession. At the time, the most ground that I could give was...
Josh tried to pick apart my argument that 1947 and 1951 were quite plausibly better analogies to what is now going on than 1966-1984 was. At the time, the most ground that I could give was perhaps. If:
Supply sharks remain small and, well, transitory…
The Federal Reserve continue to hold two it's commitment to make a long-run inflation control job one…
Markets continue to credit the Federal Reserve’s commitment…
If all three of these held, then 1947 and 1951 would be better analogies than 1966-1984.
The case that I was right looks significantly stronger now than it looked back last August.
Josh Hausman & J. Bradford DeLong (2023): “How Worried Should We Be About Rising Inflation?” Journal of Policy Analysis and Management 42:1 (Jan), pp, 305-322. <https://doi.org/10.1002/pam.22452>
Point/Counterpoint
Paul Decker & Kevin Kelly, Co-Editors:
As we are well aware, U.S. inflation rates have been on the rise for well over a year now, reaching levels that are reminiscent of the 1970s. Consumers are experiencing rising prices in necessities like gasoline and groceries. These heightened costs led to the majority of voters reporting inflation as their primary issue of concern in the 2022 midterm elections.
However, not all experts agree on how worried the Americanpublic should be about these elevated inflation levels, or how long we might expect inflation to persist. While some notable experts, including former U.S. Treasury Sec-retary and Director of the National Economic Council Larry Summers, have warnedof an impending recession given the high rates of inflation, others have argued that current levels may not necessarily indicate longer-term problems. Given this visible concern and mixed messages about the level of worry we should feel about it, weturned to two macroeconomists to share their perspectives on the current trend in rising inflation rates and their expectations for what these rates mean for the future.
In this issue, Joshua Hausman of the University of Michigan notes that he anticipates current inflation rates will remain high in the near term, but what may bemore concerning is that political pressures could prevent the Federal Reserve from enacting policies to lower inflation, which could lead to persistent inflation rates above 4 or 5 percent.
In his response essay, J. Bradford DeLong of the University of California at Berkeley describes each of the past cases of high inflation in the U.S.to understand which of these cases might best parallel the current trend. He notes that current indicators like expectations in the bond market suggest that today’s caseis most similar to those in 1947 and 1951, which were relatively short-lived; however, he notes that uncertainty around the war in Ukraine could lead to a long-term inflationary spiral comparable to the 1970s.
To conclude the column, Hausman argues that while he agrees with much of DeLong’s commentary, he sees the 1970sas a better comparison to today’s case than 1947 or 1951, leading to a concerning longer-term outlook.
Journal of Policy Analysis and Management, Vol. 42, No. 1, 305–322 (2023)© 2022 by the Association for Public Policy Analysis and Management. Published by Wiley Periodicals, Inc.
View this article online at: <http://wileyonlinelibrary.com/journal/pamDOI:10.1002/pam.22456>
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Very Briefly Noted:
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¶s:
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Steve Clemons: The red balloon: ‘The way Washington has hyperventilated over a Chinese spy balloon feels silly, and a little depressing, to me. Chinese, American, and Russian satellites orbit earth every day, carrying out intelligence gathering with incredible photographic precision. The balloon isn’t much different, yet it’s sparked an uproar that’s forced Secretary of State Antony Blinken to cancel his trip to Beijing. That’s unfortunate. The U.S. needs to keep a dialog open with China...
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Sticky price index less food & energy - 3 mo annualized change is 5.3%
If you exclude shelter as well it is 2.1%.
A whole lot of inflation is caused by a shelter rent imputation that is completely at odds with market measures of rent and home prices.
https://fred.stlouisfed.org/graph/?g=ZMrc
I think you are right about the present inflation most closely resembling that of the 1940s and 1950s. We've had a number of supply side shocks, but they've been working through the system. The 1966-1984 inflationary era lines up all too well with the baby boomers hitting age 20, but more recent generations have been much less affluent and less likely to drive inflation.