I’ve lately been arguing that financial markets could be in for a surprise in the form of higher-than-expected U.S. inflation. But let me be clear: This doesn’t mean that it will spiral out of control or soon undermine the post-pandemic recovery.
Many forces are converging to push prices upward. The Biden administration and Congress are preparing a big fiscal stimulus package, and the Federal Reserve is aiming to provide enough monetary stimulus to push the inflation rate above its 2% long-term target. Meanwhile, the gradual easing of social distancing is set to release a lot of pent-up demand for everything from restaurants to travel and tourism, which recession-damaged businesses — many oriented toward a pre-pandemic economy — will initially struggle to satisfy.
