The second statement concerns the potential inflationary effects of the current stance of fiscal and monetary policy. Weighted by each expert’s confidence in their response, 5 percent strongly agreed with the statement, 48 percent agreed, 35 percent were uncertain, 8 percent disagreed, and 5 percent strongly disagreed (the totals don’t always sum to 100 because of rounding).
IGM asked the same question in June: at that time, 33 percent agreed with the statement, 36 percent were uncertain, 26 percent disagreed, and 4 percent strongly disagreed. So while the share that is uncertain has remained at just over a third, the share that agreed has gone from a third to over a half, and the share that disagreed has gone from just under a third to less than an eighth.
Several panelists who agreed with the statement comment on the role of the Fed. Markus Brunnermeier of Princeton said, “The outcome will depend on the Fed reaction function and future fiscal policy.” And David Autor noted, “The Fed erred correctly on the side of labor market recovery over inflation risk. Inflation risk is now inflation reality. Recalculating...”
Ray Fair of Yale pointed to his own analysis of the issue: “I have a recent paper, ‘What Do Price Equations Say About Future Inflation?’, which has higher inflation predictions than the Fed expects.” Peter J. Klenow added, “This is why markets expect the Fed to eventually tighten,” providing a link to the Atlanta Fed’s market probability tracker. And Eric Maskin of Harvard referred to fiscal policy: “There are indeed inflationary risks, but the infrastructure act and the Build Back Better bill may help ease long-term inflation.”
Others who agreed with the statement were concerned about our collective lack of experience of inflation in recent times. Robert Shimer noted, “We have no recent experience in an environment with unanchored inflation expectations.” Michael Greenstone of Chicago commented, “Source of inflation is uncertain but current policy mix seems to assume too low probability that monetary/fiscal policy can make it worse.”
Among experts who said that they were uncertain, Jose Scheinkman of Columbia said, “Would agree, if current fed funds rate and rate of asset purchases are maintained even if inflation fails to abate, but not otherwise.” Richard Schmalensee observed, “I agree that current policy is too expansionary, but the Fed is shifting, and the statement seems way too strong.”
Kenneth Judd of Stanford, who was also uncertain, noted, “Inflation dropped as deficits rose in the 1980s. Increases in money did not ignite inflation after 2008.” In a related comment, Larry Samuelson, who agreed with the statement, added, “Our old models suggest that massive deficits eventually beget inflation. But, this has not happened yet, so perhaps we need new models.”
Finally, William Nordhaus, who strongly disagreed with the statement, explained, “The Fed has the tools and the will, but it may take time because of inertia coming out of years of low inflation.”