Inflation and yield U. S.

Inflation concerns from three experts

Listened three people’s comments on the current U. S. economy and economic conditions.

Prof. Robert Shiller concerned about the surging U. S. housing prices and he compared the current situation to that of 1926. He has an “uncomfortable feeling”, the term used in 1926 as well. He has similar concern of stock market especially the high equity prices during pandemic time. His view is that low interest rate can not fully justify high asset prices.

Prof. Larry Summers commented on the U. S. administration’s new proposed stimulus packages and thought the governing philosophy is turning to significant roles for the government to play in the economy and other social activities, which he by large agreed. But Summers particularly concerned about inflations and inflation expectation when the economy opens due to labor shortage, tight supply chains and massive fiscal expansions.

Mohamed El-Erian expressed his view that the economy growth from last December had been substantial and he disagreed with Fed’s assessment on the current economic conditions. He criticized the Fed for not even “thinking about thinking” policy changes, and for committing to inform market long before taking any action to taper. He seemed to believe the Fed is well behind and is potentially making policy mistakes.

I tend to agree with the mainstream economists and in particular the Fed. The Fed has the best and the most economic information that other people do not often have. Critics such as Larry Summers and Mohamed El-Erian sometimes chose to say something different from main stream.

Inflation and inflation expectation will be close to or even higher than 2% in the next few months. I believe the Fed’s assessment that they will be transitory and that the Fed has tools to control if inflation rise too high. Labor market tightness will be limited to certain areas such as high tech, a phenomenon that was the case in pre-pandemic time. In the context that inflation has been sustained low for over a decade, reasonable high inflation, even if happening for some years ahead, will benefit the society in overall.

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