Rising Inflation Expectations Are Not the Present Danger
The Federal Reserve should focus on the potential for a wage-price spiral.
Jerome Powell and the chart everyone is interested in.
Photographer: Michael Nagle/Bloomberg
Rising inflation expectations are increasing pressure on the U.S. Federal Reserve to take action — specifically, to reduce its purchases of bonds. That would be ill-advised. Instead, the Fed should focus on preventing a potential wage-price spiral.
Inflation expectations play an outsized role in standard monetary theory. Leading economists and economic commentators have repeatedly warned that rising inflation expectations leave the Fed with an unpalatable choice between a rerun of the 1970s and a crushing recession. The latest warning comes from one of the bank’s own former experts, Brian Sack.