braddelong.substack.com/p/briefly-note… First: Best-case—i.e., most optimistic scenario for employment—is employment corresponding to a “true” unemployment rate of 2.5% in 2023 with core inflation at 2.75%/year. That is enough to get inflation expectations up to the Fed’s target of... 1/
... 2.5%/year on a CPI basis. That is not enough for anyone reasonable to claim that an ever-upward inflationary spiral is on the way. The definition of “stagflation” is a world in which expectations are anchored on the belief that inflation is going to rise over time... 2/
...hence an unemployment rate greater than the natural rate is required in order to hold inflation steady. That does not seem to be the world we are headed for in the optimistic scenario. And that stagflation equilibrium is much further away in the non-optimistic scenarios... 3/
...Laurence Ball & al.: US Inflation: Set for Take-Off?: ’How high is the ongoing US fiscal expansion likely to push inflation? This column presents new evidence that underlying (weighted median) CPI inflation has so far steadily declined since the start of the COVID–19... 4/
... crisis, broadly as predicted by its historical Phillips curve relation. If the ongoing fiscal expansion reduces unemployment to 1.5–3.5%, as some predict, underlying inflation could rise to about 2.5–3% by 2023. If the fiscal expansion is temporary and monetary policy... 5/
... remains clearly communicated and decisive, there is little risk of a 1960s-type inflationary spiral… LINK: <voxeu.org/article/us-inf…> 6/END
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