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Inflation Expectations Matter for Federal Reserve’s Clout

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Inflation Expectations Matter for Federal Reserve’s Clout

Bloomberg Opinion October 8, 2021
EconomicsOther

Faster price growth can become a self-fulfilling spiral and undermine the central bank’s credibility.

After decades of rarely cracking 2%, inflation was up 5.3% year-over-year in August. This was unthinkable a few years ago, and it may get worse before it gets better. Ports, rails and trucks are backed up, and supply-chain shortages abound. Energy prices are creeping up, and it is not even winter yet.

Federal Reserve officials are trying to reassure the public that this is temporary, the natural result of taking an economy offline and restarting it, or that inflation is limited to a few quirky sectors like used cars. But at what stage does transitory inflation become permanent, and when do we need to worry? The answers are “not yet” and, more important, “now.”

Continue reading the entire piece here at Bloomberg Opinion

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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.

Photo by shaunl/iStock

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