Thanks for breaking down some of the issues surrounding inflation measurements. Maybe you've addressed this before, but isn't another reason why the current numbers should not be too concerning the fact that the Fed's inflation target is an AVERAGE over time? With inflation below 2-percent for most of the 2010s, we need inflation above 2-percent now to satisfy the targeted long-run average.
Yes - there are benefits to that. The cost of 'too low' inflation is less economic activity and a weaker bargaining positions for labor due to higher unemployment. Running the economy a bit hotter for a short time period may be welfare improving (interestingly, that was the result of the Lorenzoni - Werning paper that came out early during the inflationary surge - for inflation surges caused by supply issues, the optimal approach from a welfare perspective was too run the economy 'hot').
As you (correctly) note, the Biden tariff hikes will not move the needle much on inflation. That said, the broader protectionist movement by American politicians and the “normalization” of tariffs is definitely not helping address high inflation.
We didn’t need more tariffs on cars or batteries right now, just look at the prices at the dealer lots.
Thanks for breaking down some of the issues surrounding inflation measurements. Maybe you've addressed this before, but isn't another reason why the current numbers should not be too concerning the fact that the Fed's inflation target is an AVERAGE over time? With inflation below 2-percent for most of the 2010s, we need inflation above 2-percent now to satisfy the targeted long-run average.
Yes - there are benefits to that. The cost of 'too low' inflation is less economic activity and a weaker bargaining positions for labor due to higher unemployment. Running the economy a bit hotter for a short time period may be welfare improving (interestingly, that was the result of the Lorenzoni - Werning paper that came out early during the inflationary surge - for inflation surges caused by supply issues, the optimal approach from a welfare perspective was too run the economy 'hot').
As you (correctly) note, the Biden tariff hikes will not move the needle much on inflation. That said, the broader protectionist movement by American politicians and the “normalization” of tariffs is definitely not helping address high inflation.
We didn’t need more tariffs on cars or batteries right now, just look at the prices at the dealer lots.
This is a great post. Learnt quite a bit of macroeconomics from here. And thank you for recommending my post.