Why Yellen May Be Right Not to Fear Inflation

Some prominent economists are concerned that the U.S. is entering an era of permanently higher inflation, but Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell believe the current spike will be temporary. So far, this debate has largely been missing three dimensions: what the best forecasters are saying, what’s happening in other countries, and steps that can be taken to attenuate problems in the supply chain.

The inflation debate is familiar to anyone following financial markets or the policy discussion in Washington. The policy response has been massive — fiscal measures amounting to 22% of GDP have been enacted, not even counting direct support for the health-care sector. This has led to concerns that the government is “overfilling the bathtub” and creating higher inflation that, once it takes root, will be hard to eradicate.