Thread by @LHSummers

@porszag's recent column is typical of many analysts defending policymakers relative serenity about inflation.
bloomberg.com/opinion/articl… via @bopinion

.@porszag cites superforecasters who think there is only a 42 percent chance of inflation exceeding 3 percent for the year. The Administration budget projections (perhaps reflecting lags in the process) call for inflation closer to 2 percent this year.

Given that inflation has totaled 2.7 percent in first 5 months of this year I think odds are better than 42 percent of higher 3 percent inflation in first half of the year!

Happy to make a friendly even wager, at any scale Peter wishes, that inflation (CPI or pce) will exceed 3 percent in 2021. @porszag are you prepared to stand by your superforecasters?

The confidence with which inflation serene economists hold to their views, even after being repeatedly surprised, is a mystery to me.

I am far from certain that inflation will, on a calendar year basis, exceed 4 percent this year but I do not see given the first 5 months how anyone could fail to see this as a major risk. CPI inflation above 5 in 2021 is more likely than below 3.

If 6 months from now we have had a yr of 4 plus % inflation, 8% growth rate, record labor shortages, bottlenecks in many supply chains, housing mkt on fire & Fed w/accelerator pushed to floor-all of which are likely-I think inflation expectations are unlikely to remain anchored.

This is especially the case if the Fed continues to reject preempting future inflation or even responding to current inflation in favor of its current "no tightening till we have excess inflation beyond a reasonable doubt"

Reasonable people can disagree on econ outlook & certainly mkts reflect considerably less alarm @ inflation than I feel is warranted. But I do not see how any responsible policy maker can fail to recognize that overheating is now the largest risk in the near term US macro outlook

If overheating takes place in the US and there is an eventual spike in interest rates driven either by the Fed or the markets, there will be enormous risks to an already fragile and over leveraged global economy.

It is not only Americans but people all over the world, especially in poor countries, who have a great stake in the prudence of US policy.