Thread by @t0nyyates

Sometimes it's hard to parse the interventions in the debate about whether inflation is transitory or not.

The Fed and other central banks, if they are left to do their job, can make inflation transitory if they want to.

So people saying 'I am team transitory' are saying 'I think the Fed are going to do what it takes to stop the current rise bedding down into a permanent increase in inflation.' You have to put very high probability on extreme circumstances not to believe this IMO.

A different way to frame the debate would be - what policy path is needed to achieve the right balance between inflation and real activity?

This surfaces different views about the source and therefore the persistence of the rise in inflation.

Once you have done that you can then ask yourself and invite views on whether what the Fed [or other cbs obvs] will do matches your prescription, and if not, why not.

To get into Team Permanent, what would you have to believe?

The Fed either knowingly or unknowingly, is on a journey to respond to the rise in inflation by raising its target, and the legislative/executive branch of the US govt will not try to stop this. Not plausible.

Or: fiscal situation is so dire in the US that the Fed won't be able to raise rates because by doing so it will raise debt service costs so much that the situation worsens, and so on; and the fiscal authorities can't/won't respond. Also not plausible IMO - and markets agree.

Coherent teams should be organized around what you think drove inflation up, and how responsive it will be to monetary policy; and what you think the Fed's response will be and why.

Because of the ambiguities in the Flexible Average Inflation Target regime recently put in place, there is much scope for disagreement about the finer details of what the Fed will do.