Thread by @Noahpinion

I'm not on Team Transitory or Team Persistent when it comes to inflation. I'm on Team Conditional. Whether inflation persists or not will probably be dependent on what the government does, and on how people respond to it.

In other words, Team Transitory says "The Fed doesn't ever need to tighten because inflation will go away on its own. Look, markets expect low inflation in the future."

To which I respond: "Yeah, probably because people think the Fed will tighten."

While Team Persistent says: "Inflation is spiraling out of control, the Fed needs to drop the hammer."

To which I respond: "Not yet; merely a slightly more credible commitment to dropping the hammer if things get worse will probably be enough to prevent the spiral."

Lots of people failed to get this thread, because the don't understand conditional vs. unconditional forecasts. But Tyler Cowen gets it. Read this:

marginalrevolution.com/marginalrevolu…