Thread by @DianeSwonk

Some thoughts on how to think about the rebound. What was hoped would be a sprint has become a marathon of a pandemic with hurdles along the way. We have just crossed our proverbial hardest mile. Fatigue set in this winter.

Vaccinations and a lot of fiscal stimulus has given us a much needed shot of adrenaline. We replaced incomes while waiting for jobs to come back, and then some. The euphoria is already unleashing pent-up demand for travel, indoor dining, spas, gyms, etc.

Domestic air travel hit its highest level in over year in recent weeks. Popular domestic spots will see a surge as travel to other countries will remain suppressed. This will shift some spending away from goods to services.

This is where it gets tricky. The virus mutates - all viruses do. Some mutations are benign, some are not. Why do we care? Because the course of the virus still determines the course of the economy. We don’t want to allow more contagious and more lethal variants to take hold.

That would create new hurdles and threaten to set us back, again. It’s time to start learning from our mistakes. The goal is to open, stay open & let the economy rip. Sadly, the pandemic is global but vaccinations are not. A mutation anywhere is a mutation everywhere.

We also need to get further along our own path of vaccinations - it is now within reach - before allowing another outbreak that could make for worse mutations. That requires a few more precautions - masks, encouraging more widespread vaccinations.

Too many are still resistant to taking vaccine to get to level needed for herd immunity. We will also need to leverage testing, tracing and therapeutics to wrestle the virus to its knees and manage outbreaks. The vaccines also show some promise in helping with long haul COVID.

Cases of new variants are already rising in a dozen states. We want to embrace our progress and each other, not squander it. Growth could *easily* hit its fastest pace since 1984 in 2021 after worst year since 1946.

Prices will flare as that demand is unleashed. The algorithms that set prices for travel and tourism are designed to push prices up as demand spikes. It is also easier to close than reopen, as we have already seen in manufacturing and construction. Bottlenecks are inevitable.

The Fed has decided it will allow a flare in prices rather than get in the way of an economy that still needs to restore jobs. They see that inflation as transitory. We are in unchartered waters & the Fed could be wrong but the risk is worth taking given where we are.

The Fed has the tools to fight inflation. Their view for the moment is “make my day.” A hot economy is much better than a stone cold economy, and can much more easily cooled than we saw in the 1980s. That period represented years of unchecked inflation & bad policies.

Workers also had a lot more bargaining power in previous inflation episodes with wages boosted well before we hit anything close to full employment. The pendulum has swung to the other extreme, one of many reasons to roll the dice on allowing the economy to boom, safely.

Also. Bond market could get ahead of the Fed. This would derail steam in housing and goods purchases and alleviate the upward pressure on prices there. We just don’t want the bond market to get too far ahead of the economy.

For the bond market, the current environment is a paradigm shift. They don’t trust that a flare in inflation will be transitory - we haven’t had one - and they do not benefit like workers do from the Fed’s decision to overshoot, even if it is a modest overshoot.

We have lost at least 1-1/2 yrs of the economy to the pandemic - let’s not lose more. We now have the means to learn from mistakes & convert a catastrophe into a catalyst to more inclusive, robust & sustained growth. That is worth reaching for.