Case for inflation panic has 'died,' Paul Krugman argues

"The case for inflation panic" has "died," economist Paul Krugman argued in a Saturday morning Twitter thread.

Krugman writes that the fears stemmed in part from a belief that the Federal Reserve's "intellectual framework," which includes making a distinction between "volatile commodity prices" and "inertial core inflation," was wrong and the central bank was failing to consider that soaring lumber prices, for example, were "harbingers" rather than "transitory shocks." But Krugman pointed to a swift decline in lumber prices since they peaked in May as evidence to dismiss that theory, and highlighted a recent analysis from the White House Council of Economic Advisers that makes a similar case.

Krugman also believes that people who have been worried about a major fiscal stimulus overheating the economy while a passive Federal Reserve ignores warning signs should breathe a sigh of relief, pointing to a recent Federal Open Market Committee statement that he views as a sign that the central bank is an "institution aware that inflation might become a risk and [is] willing to act if necessary."