Evaluating Our Inflation Gurus

Back in June, Federal Reserve Chair Jerome Powell said the mid-year spike in inflation was temporary, and John Williams, President of the Federal Reserve Back of New York, said he expected inflation in 2021 to be around 3% for 2021. These are the people who are in charge of managing inflation.

At the time, I said I expected 2021 inflation to be above 5%, and that we could look at the numbers at year-end to see whose estimate was closer. As you probably know, the 2021 inflation rate came in at 7%, the highest it’s been since 1982.

Last month, President Biden said inflation had peaked and would rapidly start falling. While the president does not make the policy decisions that affect inflation directly, his views do influence those policymakers who do directly affect inflation. The president’s view (as of last month, anyway) that inflation remains a transitory problem does not bode well for any resolve to invoke strong anti-inflation policies.

Politically, it is difficult to tackle inflation during an election year, because inflation-fighting policies tend to slow the economy, creating an additional impediment to the reelection of incumbents who already face substantial challenges.

Six months ago, the attitude of our inflation gurus was that it was temporary and would take care of itself. One sign of progress is that Chairman Powell now says the Federal Reserve will use its tools to combat inflation. The question is: do they actually have the resolve to do it?

Randall G. Holcombe is a Senior Fellow at the Independent Institute, the DeVoe Moore Professor of Economics at Florida State University, and author of the Independent Institute book Liberty in Peril: Democracy and Power in American History.
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