Krugman: Inflation losing its bite, statistically, politically

By Paul Krugman / The New York Times

Last week was full of speeches. Most of those that attracted national attention were at the Democratic National Convention, culminating in Vice President Kamala Harris’ big moment on Thursday. But there was another important speech on Friday: Federal Reserve Chair Jerome Powell’s talk at the Fed’s annual shindig in Jackson Hole, Wyo.

Yes, Powell’s remarks were of particular interest to investors looking for clues about future monetary policy. But even though his speech was rigorously apolitical, it had important political implications. For what we’re seeing, I’d argue, is inflation fading away; not just in the data, but also as a political issue. And that, of course, is very good news for Democrats.

About Powell’s speech: He noted that the inflation rate has declined a lot since it peaked in 2022 and expressed confidence that it’s on track to reach the Fed’s target of 2 percent; and why it’s getting there without the mass unemployment some economists had claimed would be necessary. Falling inflation all but guarantees that the Fed will cut interest rates at its Open Market committee meeting next month, although the size of the anticipated cut is uncertain.

What has brought inflation down? Like many economists, myself included, Powell believes that inflation was largely caused by “pandemic-related distortions” and that “the unwinding of these factors took much longer than expected but ultimately played a large role in the subsequent disinflation.”

https://www.heraldnet.com/opinion/krugman-inflation-losing-its-bite-statistically-politically/