Prices have been pushed higher by temporary data issues and by the consumer demand that government stimulus fueled. Most central bankers and Wall Street economists think today’s increase will fade with time. It is possible that once things settle down, prices will stabilize right around the Fed’s target — instead of under that goal, where they had been for a decade.
There is a risk that excessively fast price gains could last, and there are big reasons to remain alert to that possibility. If inflation jumps out of control, the Fed has to raise rates and plunge the economy back into a recession to cool things off, the nation’s most vulnerable workers will pay.
But it’s also easy to lose sight of the reality that inflation is a symptom, one that has come about because America is experiencing such a rapid snap back.
“It’s a much more upbeat story when you’re listening to earnings calls than our macro narrative tends to be,” said Julia Coronado, a former Fed economist and founder of MacroPolicy Perspectives. She thinks some of that is political, as Republicans try to weaponize inflation. Some of it is the nature of the profession, which is structured to point out risks, not rainbows.
“Economists are not known for looking at the glass half full,” said Ms. Coronado.
(It is an enduring observation about her profession. Thomas Carlyle in the 19th century labeled the entire economics profession “the dismal science,” and given its ring of truth, the dreary title stuck.)
Besides inflation, economists are worrying about possible asset bubbles. Central bank officials including Robert S. Kaplan, head of the Dallas Fed, and James Bullard, head of the St. Louis branch, have warned that policymakers should be keeping a careful eye on rising real estate prices. And as Delta surges, analysts of all stripes are watching closely to ensure that it does not slow shopping, traveling and dining out — while worrying that it will.
The gray cloud that seems to hang over the profession might have a silver lining. It could be the case that by monitoring the risks around high inflation and watching for impending doom, the profession is setting up America for a more sustainable expansion down the road — one where government spending policy is more carefully crafted not to tax overextended industries, and where investors believe the Fed will act if needed, keeping exuberance in check.