No one is clairvoyant. Recall that throughout 2020 and much of 2021, the consensus among central bankers was that inflation was transient. Though they have since changed their tune, it may turn out that they weren’t entirely wrong after all.
With so much talk of stagnation, inflation, and stagflation in recent months, it is worth questioning whether the prevailing pessimism is justified. While I have shared in the gloom , I’m starting to reflect on my previous views, for four reasons.
After all, the main reason that “recession” is such a scary word is that recessions are usually unexpected. Economic forecasters tend not to see them until they have already arrived. That is what happened in 2007-08 and again in 2020, following the arrival of Covid-19. Yet now, even some central banks are openly
. In light of that data, I would not be surprised if the National Bureau of Economic Research declares the USThe second reason for my scepticism about the prevailing narrative is that not all medium- and long-term indicators point to sustained higher inflation. The closely watched University of Michiganmay have briefly risen above 3%, but it has since fallen back to 2.9%, suggesting that average consumers regard this year’s huge surge in inflation as temporary.
Finally, in most investment-bank research notes nowadays, there is a strong assumption that central banks will vigorously fight any financial-market rally, because they cannot afford to let financial conditions ease in the current environment of low unemployment, upward wage pressures, and concerns about inflation.
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