![]() Inflation expectations are also a gauge worth watching. It's this gamble that concerns conservative economists, or "hawks." After decades of not letting inflation trend above 2%, it's embarking on an experiment to let the country run hot in hopes of a faster recovery.įed Chair Jerome Powell has been less exact with his forecast, but expects inflation to trend above 2% for "some time" before falling in line with the central bank's long-term goal. The Fed's new inflation target opens the door for a period of economic overheating as the country reopens. Policymakers expect year-over-year personal consumption expenditures - the Fed's preferred inflation measure - to reach 3% this year before cooling to 2.1% in 2022, according to a June release. The Fed's own projections point to the stronger-but-transitory inflation it expects to see over the next few months. This update allows the Fed to pursue inflation above 2% immediately after the crisis as it tries to run the economy hot and drive a stronger recovery. In a major shift, the central bank replaced its 2% target in August with a goal for inflation that averages 2% over time. The Fed, America's central bank, has an "inflation target," which it uses to guide price growth. Whether price growth stays elevated or trends back to about 2% will tell the tale of whether Biden's plan was safe or fuel for a 1970s-like crash. The Fed was forced to step in with interest rates as high as 20% to choke off the price growth, and that had its own detrimental effects on the economy, including a deep recession in the early 1980s.Ĭonservative economists have warned Biden's $1.9 trillion stimulus package was unnecessary and could spark a similar disaster. In that decade, swaths of easy money were initially viewed as a way to combat unemployment, but inflation quickly broke out of its trend and spiraled out of control. "I think there's about a one-third chance that the Fed and the Treasury will get what they're hoping for and we'll get rapid growth that will moderate in a non-inflationary way," he added.Ī return to the inflation seen in the 1970s would be disastrous for the already ailing economy. People under 40 simply don't know a world with runaway inflation - or what the beginning of such a world might look like.įormer Treasury Secretary Larry Summers, one of the loudest voices raising concerns of rampant price growth, castigated Democrats' $1.9 trillion stimulus in March as the "least responsible" fiscal policy in 40 years and kindling for an inflation crisis. Price growth has trended below the Fed's 2% target for most of the past quarter-century. ![]() ![]() The Consumer Price Index rose less in July than in the month prior, and several drivers of faster price growth - used cars and some food like beef and pork - cooled.įor some, forecasts of stronger inflation bring up memories of the 1970s and 1980s, an era sometimes called the Great Inflation, when prices grew at such a furious pace that the Federal Reserve had to lift interest rates to historic highs.įor younger observers, healthy inflation is a long pursued but seldom seen goal. Yet the latest reading suggests stronger inflation is already easing. Economists expected the combination of a swift reopening and trillions of dollars in stimulus to lift prices at their fastest rate in recent history, and inflation soared to its fastest rate since 2008 in the spring. Inflation - or the general rate at which prices climb - has taken center stage as the US economy climbs out of its year-long slump. ![]() What can the Fed and the government do about inflation?Īfter decades of weaker-than-expected price growth, America has inflation on the brain. What would healthy inflation look like this year?
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