superrific
Master of the ZZLverse
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With all due respect, nyc, this is wrong. There's no fair way NOT to hang that inflation tick on Trump.Inflation in December ticked up. No fair way to hang that on Trump.
Of all macroeconomic indicators, inflation is the one most influenced by expectations. In fact, there are macroeconomic models that attribute inflation to nothing BUT expectations. Moreover, some models -- I think they no longer have any currency, but circulated in the 1980s -- indicated such an important role for market psychology that the prescription was for the Fed basically to lie about what it was doing. That has never been fed policy and the relative success of the "radical transparency" policies of the Fed in the 1990s and later (the one good thing Greenspan did) has shut the door on the "fool the people" concept. But the point is: economists think that inflation is about expectations.
And that's why central banks are so, so, so protective of their "credibility." And we've seen how that works in the immaculate disinflation of the past two years. Some observers*** were predicting that disinflation would require economic disruption and a substantial drop in growth. But it didn't, right? And that's largely because the interest rates weren't necessarily working through channels like consumer debt, reduced economic activity. It's because the rate increases were working through the channels of expectations. Those other channels have to be there for the expectations channel to function, but once the expectation channel functions, that's the main vehicle for price stability or instability.
So when Trump comes along and babbles about tariffs, it caused the fed to be like, "eh, we maybe can't cut rates as we had hoped." Doing so would have been a loss of credibility. In other words, Trump's tariff talk took us to a different set of expectations, one that is inherently inflationary.
*** We had that exchange a bit ago when you said that economists projected a recession with 100% confidence, and I said that I don't recall economists saying that, and you came back with a news article about 100% of economists, etc. It was a funny exchange. But Krugman is a prominent economist and he NEVER predicted a recession. I think the mixup was that the articles you were citing were talking about economic forecasters, whereas I took the statement about economists to include academics like Krugman, Chetty, Zucman or Acemoglu.
Anyway the forecasters are using empirically tuned models and aren't really relevant to a basic theoretical discussion.