A 🧵on the current macro policy debate, which looks on the surface a lot like the debate in early 2021 — in which I was wrong! — but to me seems quite different, and in a disturbing way 1/
In 2021 both sides agreed on the conceptual basics: big fiscal outlays would be stimulative and potentially inflationary. So it was a quantitative argument about the size of those effects, and the pessimists were right 2/
At this point, however, hard-liners who want the Fed to keep tightening are relying on arguments that seem to me to be just conceptually wrong, indeed involve implicitly rejecting what I thought were generally accepted principles. 3 arguments in particular 3/
First, there's the argument that the continuing tightness of U.S. labor markets says that we still haven't tightened enough. This seems odd given what I thought was a universal view that monetary policy works with substantial lags 4/
We know that the strong dollar will take a while to hit trade flows; mortgage rate rises are clearly having a big effect on housing, but construction employment has yet to decline. Surely much of the impact of the tightening so far lies in the future? 5/
Second, there's the argument that we need an extended period of unemployment well above the NAIRU (bad term, but never mind for now) to tame inflation, as in the 1980s. But I thought we were agreed that this was because in 1980 inflation was entrenched in expectations 6/
These days all available evidence says that inflation expectations are still anchored, which means that analogies with the Volcker disinflation are all wrong, talk about "sacrifice ratios" etc misplaced. Unless the hardliners have a different model? If so, what is it? 7/
Finally, rent. Excellent new paper from the BLS shows that the CPI rent index lags a full year behind rents paid by new tenants, which means that core inflation likely to stay high bc of big rent rises in the past 8/ https://www.bls.gov/osmr/research-papers/2022/pdf/ec220100.pdf
But that isn't a reason for tight monetary policy! If new-tenant rents are leveling off, which seems to be happening, this says that conventional measures of core inflation are about the past, not a good indicator of whether the economy is overheated now. 10/
Again, maybe this is more than a knee-jerk application of the concept of core inflation to unusual circumstances; maybe there's an argument saying that current monetary policy should react to the state of the rental market a year ago. But what is it? 11/
Now, it's certainly possible that the Fed hasn't yet tightened enough. That's a quantitative question, and hard to answer in this strange new economic environment. But the hardliner arguments I'm hearing seem to rest on dubious logic 12/
今日では、利用可能な証拠はすべて、インフレ予想が依然として固定されていることを示している。それが意味するのは、ボルカーディスインフレのアナロジーは完全に間違っており、「犠牲率」云々の話は的外れ、ということである。それとも強硬派には違うモデルがあるのか? そうならば、それはどんなモデルなのか?
しかし、それは金融引き締めの理由にはならない! もし、実際にそうなっていると思われるように新たなテナントの賃料が横ばいになっているのなら、そのことが意味するのは、昔ながらのコアインフレの指標は過去についてのものであり、現在経済が過熱しているかどうかの良い指標ではない、ということである。