An inflation surge poses a growing threat
But what can be done?
The smartest insight and analysis, from all perspectives, rounded up from around the web:
Economists are starting to question whether the Federal Reserve missed its chance to act on inflation, said Christopher Rugaber in The Associated Press. Consumer prices rose 7 percent in the past year, the steepest climb since 1982. The latest U.S. jobs report also "raised alarms," showing "another sharp drop in the unemployment rate" even as businesses are still reporting a labor shortage. That has forced "an unexpectedly large increase in hourly pay" to attract and retain workers. With no sign of the price crunch easing, inflation has "become the most serious threat to the economy, a growing worry for the financial markets, and a major political problem for the Biden administration and Democrats in Congress."
A "nightmare" threat is becoming real, said Paul La Monica in CNN. So far, "rising prices are more a source of consumer complaints" than a deep economic concern. But "lingering supply-chain worries and surging cases of the Omicron variant" threaten the economy. If consumers slow their spending, then "it would be time to worry about stagflation," a scenario in which prices rise as the economy slows. China's "zero tolerance" COVID stance is also a factor, said Ana Swanson and Keith Bradsher in The New York Times. If China locks down factories and ports to combat the spread of Omicron, the effect on supply chains "could depress consumer confidence."
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Everyone agrees that the surge in inflation "comes as a shock, especially because so many people, myself included, didn't see it coming," said Paul Krugman in The New York Times. But step back a little and you'll see that this was the trade-off we made to keep the economy afloat in the pandemic. It's a major achievement for policymakers that the pandemic "may have cost fewer jobs than the dot-com bust." Yes, "we could have had lower inflation right now if we'd accepted a slower employment recovery," but I'd argue that "restoring full employment was more important." The rise in prices is "unpleasant," but there is "little evidence that inflation is getting entrenched."
That story about how inflation is not entrenched and could just "melt away" is the same one we are hearing from the Fed, said former New York Fed president Bill Dudley in Bloomberg. The Fed still projects inflation will be just 2.6 percent in 2022, and will gently slip down to the 2 percent range with little action from the Fed. This is likely an "Alice in Wonderland" fantasy; in reality, the Fed will need to raise the rates that banks pay from the current near-zero to "the 3 percent to 4 percent range," seriously slowing the economy.
"Everyone wants to see a U-turn," said Edward Price in the Financial Times, in which "the Fed will roll up to the lights, signal carefully, and then seamlessly swing its bonnet around." But the labor market is too tight for a sweeping maneuver. One alternative is a clunkier K-turn, with stops and starts, that "will avoid a major panic." But if prices stay elevated, we may get a J-turn that "spins the vehicle around sharply in reverse." It's quick and effective "but it ain't fun." The Fed is navigating through a foggy windshield, with unforeseen obstacles threatening to spin it out of control.
This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
The Spanish cop, 20 million euros and 13 tonnes of cocaine
In the Spotlight Óscar Sánchez Gil, Chief Inspector of Spain's Economic and Tax Crimes Unit, has been arrested for drug trafficking
By The Week UK Published
-
5 hilarious cartoons about the rise and fall of Matt Gaetz
Cartoons Artists take on age brackets, backbiting, and more
By The Week US Published
-
The future of X
Talking Point Trump's ascendancy is reviving the platform's coffers, whether or not a merger is on the cards
By The Week UK Published