May 17, 2021

Is Transitory inflation ok ?

How is "transitory" inflation (high) price stability? Is the Fed violating a core tenet of its mandate? Can they make their own mandate now? 

If "transitory" inflation is OK, why isn't transitory deflation OK? Isn't transitory deflation what their "models" should have suggested with regard to COVID? Virus goes away, economy recovers. Don't need a model. Bridge the gap fine, make sure the underlying financial alchemy hangs together, but after that well why the need to react so much to a transitory theoretical deflationary situation which never even turned out to be deflationary? They may argue there is substantial risk to transitory deflation, and it could feed on itself and create a fair bit of damage. Fine, same can be said of transitory inflation as well. In fact, more economic disasters in the world have been born out of inflationary disasters as opposed to deflationary disasters. The inflationary disasters tend to seem to start with poor governance, both fiscal and monetary, that we are seeing now. 

My guess is the answer to all of this is the Fed is no longer an independent entity and has become entangled in politics. Further, the Fed has its own version of cancel culture. Follow doctrine, you are acceptable as an economist, and you become part of the group.

Disagree, well you are just an old school curmudgeon stuck in the dark ages and you don't get a seat at the table. Mix that with the aforementioned lack of independence and politicization of the Fed, and you have a dangerous condition.  

via twitter