“I don’t think anyone will be too surprised to see massive airfare inflation” in the short term, for example, as the economy reopens, said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution. “Ultimately we’re worried about an outcome in the real economy, which is rapid growth in 2021 followed by a significant reversal in 2022 or 2023 with anything like a recession, negative growth or a sizable increase in the unemployment rate,” said Jason Furman, a former Obama administration economic adviser. “Much of what we call ‘overheating’ is mostly a concern insofar as it triggers that outcome.”Mr. Furman says annual inflation rates of 3.5 percent or higher in late 2021 or 2022 would “create a substantial risk of macroeconomic reactions that create genuine instability and problems in the economy,” and that even a notch lower than that, 2.5 percent to 3.5 percent, could create some problems. Julia Coronado, president of MacroPolicy Perspectives, by contrast, argues that it would take several years of inflation at 3 percent or higher — not just a bump in 2021 or 2022 — before she would worry that inflation expectations could become unmoored, leading to either an inflation-tamping recession or a 1970s-style vicious cycle of ever-higher prices. “It is strange to me that for years economists pined for a better mix of monetary and fiscal policy, and now we have it and there is a narrative among some that it has to end in disaster,” Ms. Coronado said.

Source: International New York Times March 24, 2021 13:49 UTC