People often ask how long it'll likely take to get CPI back down to 2%.
That question kind of assumes that once it gets back there, it'll stay there. ๐งต
That question kind of assumes that once it gets back there, it'll stay there. ๐งต
In the 1940s, inflation went from double digits, to negative, to double digits again, to negative again, to nearly to double digits again, and then negative again.
If policymakers seize up the economy into a deep recession, then it's not impossible to get to 2% pretty quickly.
The question is, what then? What happens when they try to kickstart the next growth cycle? Are the forces of inflation magically gone by that point?
The question is, what then? What happens when they try to kickstart the next growth cycle? Are the forces of inflation magically gone by that point?
Going forward, U.S. fiscal deficits are like $1.5T/year as a baseline, or higher in a recession.
And global energy/commodity markets are still tight on the supply side. There's been no major capex cycle yet.
And global energy/commodity markets are still tight on the supply side. There's been no major capex cycle yet.
So, the 2020s are likely to be characterized by recurring bouts of large monetized fiscal deficits, and tight energy/commodity markets. And war as an ongoing wildcard.
Policymakers can dampen demand and reduce broad money for periods of time, but those underlying causes remain.
Policymakers can dampen demand and reduce broad money for periods of time, but those underlying causes remain.
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