The New York Fed vs. Larry Summers

The conclusion of a New York Federal Reserve article on how much of the current inflationary spurt is due to supply bottlenecks is worth reading for a not-so-subtle debate. Hats off to mike green for the place.

The current debate over the Federal Reserve’s ability to engineer a soft landing must unravel the drivers of US inflation. Our work shows that inflation in the United States would have been 6% instead of 9% at the end of 2021 without supply bottlenecks. Our quantitative results explain why some experts were wrong to predict a transitory surge in inflation, when others were right to predict high inflation, but for the wrong reasons. In other words, the fiscal stimulus and other aggregate demand factors would not have pushed inflation so high had it not been for the pandemic-related supply constraints. In the absence of any new energy or other shocks, it is therefore possible that the ongoing easing of supply bottlenecks will lead to a substantial drop in inflation in the short term.

This is what we underline in bold, but the New York Fed hyperlinks. The first takes you to a Paul Krugman mea-culpa, and the second – about pundits who were right about high inflation but for the wrong reasons – takes you here:

Ouch. For economics nerds, here’s a link to the full research paper, rather than just the NY Fed blog summary. Clearly, whether we have truly passed peak inflation is a hot topic right now.

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