Tyler Cowen, Columnist

Inflation Is Uncontainable But Not Inevitable

Even if there are price increases, they’re unlikely to be steep.

February 25, 2021 at 4:00 PM UTC

Tyler Cowen is a Bloomberg Opinion columnist, a professor of economics at George Mason University and host of the Marginal Revolution blog.

Jerome Powell, governor of the U.S. Federal Reserve, speaks in front of a consumer price inflation (PCE prices) chart during an Economic Club of New York event in New York, U.S., on Thursday, June 1, 2017. Powell is calling for gradual interest rate increases and a start to balance-sheet reductions later this year if the economy stays on track, though hes watching a recent slowdown in inflation.
Photographer: Michael Nagle/Bloomberg

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Otherwise intelligent people can be surprisingly wrong about economics. The latest example is the claim that current inflationary pressures are somehow being “captured” or “locked up” in asset prices, and that those pressures may someday inflate the prices for goods and services.

On one hand, you can see why this view might seem plausible. The U.S. Federal Reserve engaged in an unprecedented monetary expansion in 2008 and 2009, increasing the total of bank reserves held at the Fed by trillions. More recently, on a year-to-year basis the broader measure of money supply, which also reflects private credit creation, increased by about 26%. Meanwhile, the major stock price indices rose to new heights during a disastrous pandemic, bond prices have remained high, and the total value of cryptocurrency topped $1 trillion, if only temporarily.