US

Inflation

With consumer prices rising at the fastest pace for three decades, we invited our US panel to express their views on the risks of prolonged higher inflation as a result of the current stance of fiscal and monetary policy, as well as the likely impact of an easing of supply bottlenecks. We asked the experts whether they agreed or disagreed with the following statements, and, if so, how strongly and with what degree of confidence:

(a) The supply bottlenecks that are currently contributing to rising prices can be reasonably expected to abate without causing inflation over the longer term to be above the Fed’s target.

(b) The current combination of US fiscal and monetary policy poses a serious risk of prolonged higher inflation.

Supply bottlenecks

Of our 43 experts, 41 participated in this survey. On the first statement, weighted by each expert’s confidence in their response, 55% agree, 34% are uncertain, and 11% disagree. The short comments that the panelists are able to include when they participate in the survey provide a variety of perspectives on the potential effects of current supply bottlenecks on inflation over the longer term.

Among those who agree that inflationary pressures can be expected to abate, Austan Goolsbee at Chicago remarks: ‘The steady state for a manufactured good is not shortage.’ Carl Shapiro at Berkeley says: ‘Temporary supply constraints cannot cause long-term inflation. People should indicate a time frame when they say “long term”.’ Darrell Duffie at Stanford comments: ‘I agree because (a) the supply-chain disruptions are not permanent and (b) the Fed will eventually act.’ Robert Hall at Stanford adds: ‘That is the Fed’s job.’

Pete Klenow at Stanford directs us to some further reading with a consensus view on inflation prospects: ‘In the latest Survey of Professional Forecasters, PCE inflation is expected to average 2.3% from 2021-2030.’ David Autor at MIT also agrees but with a caveat: ‘The supply bottlenecks will likely abate, but I doubt that this alone will resolve the inflation threat.’ And William Nordhaus at Yale, who disagrees, explains why: ‘Depends upon the wage response and expectations, as well as Fed timing.’

Several participants who say that they are uncertain make reference to inflation expectations. Larry Samuelson at Yale notes: ‘The supply bottlenecks will abate, but expectations or other adaptations to inflation may then cause inflation to persist.’ Richard Schmalensee at Yale concurs: ‘Bottlenecks can reasonably be expected to abate in the near term, but longer-term impacts on expectations are uncertain.’ And Anil Kashyap at Chicago states: ‘The inflation is here, future expectations could shift, indexing could re-emerge (see John Deere union contract), no way to be certain.’

Similarly, Robert Shimer at Chicago warns: ‘Supply bottlenecks will abate unless new barriers are created. But current adverse supply shocks may still lead to persistent inflation.’ And Aaron Edlin at Berkeley concludes: ‘Inflation might be temporary if its causes are temporary. But inflation does tend to cause inflation.’

Risks of prolonged higher inflation

The second statement concerns the potential inflationary effects of the current stance of fiscal and monetary policy. Weighted by each expert’s confidence in their response, 5% strongly agree with the statement, 48% agree, 35% are uncertain, 8% disagree, and 5% strongly disagree (the totals don’t always sum to 100 because of rounding).

We asked the same question in June this year: at that time, 33% agreed with the statement, 36% were uncertain, 26% disagreed, and 4% strongly disagreed. So while the share that is uncertain has remained at just over a third, the share that agree has gone from a third to over a half; and the share that disagree has gone from just under a third to less than an eighth.

Several panelists who agree with the statement comment on the role of the Fed. Markus Brunnermeier at Princeton says: ‘The outcome will depend on the Fed reaction function and future fiscal policy.’ And David Autor notes: ‘The Fed erred correctly on the side of labor market recovery over inflation risk. Inflation risk is now inflation reality. Recalculating…’

Ray Fair at Yale points us to his own analysis of the issue: ‘I have a recent paper, “What Do Price Equations Say About Future Inflation?”, which has higher inflation predictions than the Fed expects.’ Pete Klenow adds: ‘This is why markets expect the Fed to eventually tighten’, providing us with a link to the Atlanta Fed’s market probability tracker.’ And Eric Maskin at Harvard refers to fiscal policy: ‘There are indeed inflationary risks, but the infrastructure act and the Build Back Better bill may help ease long-term inflation.’

Others who agree with the statement are concerned about our collective lack of experience of inflation in recent times. Robert Shimer notes: ‘We have no recent experience in an environment with unanchored inflation expectations.’ Michael Greenstone at Chicago comments: ‘Source of inflation is uncertain but current policy mix seems to assume too low probability that monetary/fiscal policy can make it worse.’

Among experts who say that they are uncertain, Jose Scheinkman at Columbia says: ‘Would agree, if current fed funds rate and rate of asset purchases are maintained even if inflation fails to abate, but not otherwise.’ Richard Schmalensee observes: ‘I agree that current policy is too expansionary, but the Fed is shifting, and the statement seems way too strong.’

Kenneth Judd at Stanford, who is also uncertain, notes: ‘Inflation dropped as deficits rose in the 1980s. Increases in money did not ignite inflation after 2008.’ In a related comment, Larry Samuelson, who agrees with the statement, adds: ‘Our old models suggest that massive deficits eventually beget inflation. But, this has not happened yet, so perhaps we need new models.’

Finally, William Nordhaus, who strongly disagrees with the statement, explains: ‘The Fed has the tools and the will, but it may take time because of inertia coming out of years of low inflation.’

All comments made by the experts are in the full survey results.

Romesh Vaitilingam
@econromesh
November 2021

Question A:

The supply bottlenecks that are currently contributing to rising prices can be reasonably expected to abate without causing inflation over the longer term to be above the Fed’s target.

Responses weighted by each expert's confidence

Question B:

The current combination of US fiscal and monetary policy poses a serious risk of prolonged higher inflation.

Responses weighted by each expert's confidence

Question A Participant Responses

Participant University Vote Confidence Bio/Vote History
Acemoglu
Daron Acemoglu
MIT
Uncertain
3
Bio/Vote History
Altonji
Joseph Altonji
Yale
Agree
4
Bio/Vote History
Auerbach
Alan Auerbach
Berkeley
Uncertain
5
Bio/Vote History
Autor
David Autor
MIT
Agree
5
Bio/Vote History
The supply bottlenecks will likely abate, but I doubt that this alone will resolve the inflation threat
Baicker
Katherine Baicker
University of Chicago
Uncertain
3
Bio/Vote History
Banerjee
Abhijit Banerjee
MIT
Agree
4
Bio/Vote History
Bertrand
Marianne Bertrand
Chicago
Agree
1
Bio/Vote History
Brunnermeier
Markus Brunnermeier
Princeton
Disagree
6
Bio/Vote History
Chetty
Raj Chetty
Harvard Did Not Answer Bio/Vote History
Chevalier
Judith Chevalier
Yale
Uncertain
5
Bio/Vote History
Cutler
David Cutler
Harvard
Uncertain
7
Bio/Vote History
Deaton
Angus Deaton
Princeton
Agree
6
Bio/Vote History
Emphasis on “reasonably.” Would not agree without it.
Duffie
Darrell Duffie
Stanford
Agree
8
Bio/Vote History
I agree because (a) the supply-chain disruptions are not permanent and (b) the Fed will eventually act.
Edlin
Aaron Edlin
Berkeley
Uncertain
7
Bio/Vote History
Inflation might be temporary if it’s causes are temporary. But inflation does tend to cause inflation.
Eichengreen
Barry Eichengreen
Berkeley
Agree
5
Bio/Vote History
Einav
Liran Einav
Stanford
No Opinion
Bio/Vote History
Fair
Ray Fair
Yale
Disagree
5
Bio/Vote History
Finkelstein
Amy Finkelstein
MIT
Disagree
1
Bio/Vote History
Goldberg
Pinelopi Goldberg
Yale
Agree
7
Bio/Vote History
Goolsbee
Austan Goolsbee
Chicago
Agree
6
Bio/Vote History
The steady state for a manufactured good is not shortage
Greenstone
Michael Greenstone
University of Chicago
Uncertain
4
Bio/Vote History
Hall
Robert Hall
Stanford
Agree
5
Bio/Vote History
That is the fed’s job
Hart
Oliver Hart
Harvard
Agree
6
Bio/Vote History
Holmström
Bengt Holmström
MIT
Disagree
4
Bio/Vote History
My answer assumes term means over 2 years.
Hoxby
Caroline Hoxby
Stanford
Agree
8
Bio/Vote History
Hoynes
Hilary Hoynes
Berkeley
Agree
5
Bio/Vote History
Judd
Kenneth Judd
Stanford
Agree
6
Bio/Vote History
Kaplan
Steven Kaplan
Chicago Booth
Uncertain
5
Bio/Vote History
Kashyap
Anil Kashyap
Chicago Booth
Uncertain
10
Bio/Vote History
The inflation is here, future expectations could shift, indexing could re-emerge (see John Deere union contract), no way to be certain.
Klenow
Pete Klenow
Stanford
Agree
7
Bio/Vote History
In the latest Survey of Professional Forecasters, PCE inflation is expected to average 2.3% from 2021-2030.
-see background information here
Levin
Jonathan Levin
Stanford
Agree
4
Bio/Vote History
Maskin
Eric Maskin
Harvard
Agree
4
Bio/Vote History
Nordhaus
William Nordhaus
Yale
Disagree
7
Bio/Vote History
Depends upon the wage response and expectations, as well as Fed timing.
Obstfeld
Maurice Obstfeld
Berkeley
Uncertain
7
Bio/Vote History
Saez
Emmanuel Saez
Berkeley
Agree
5
Bio/Vote History
Samuelson
Larry Samuelson
Yale
Uncertain
1
Bio/Vote History
The supply bottlenecks will abate, but expectations or other adaptations to inflation may then cause inflation to persist.
Scheinkman
José Scheinkman
Columbia University
Agree
5
Bio/Vote History
Schmalensee
Richard Schmalensee
MIT
Uncertain
5
Bio/Vote History
Bottlenecks can reasonably be expected to abate in the near term, but longer-term impacts on expectations are uncertain.
Shapiro
Carl Shapiro
Berkeley
Agree
3
Bio/Vote History
Temporary supply constraints cannot cause long term inflation. People should indicate a time frame when they say "long term".
Shimer
Robert Shimer
University of Chicago
Uncertain
5
Bio/Vote History
Supply bottlenecks will abate unless new barriers are created. But current adverse supply shocks may still lead to persistent inflation.
Stock
James Stock
Harvard
Agree
6
Bio/Vote History
Thaler
Richard Thaler
Chicago Booth
Uncertain
1
Bio/Vote History
Udry
Christopher Udry
Northwestern Did Not Answer Bio/Vote History

Question B Participant Responses

Participant University Vote Confidence Bio/Vote History
Acemoglu
Daron Acemoglu
MIT
Uncertain
3
Bio/Vote History
Altonji
Joseph Altonji
Yale
Uncertain
4
Bio/Vote History
Auerbach
Alan Auerbach
Berkeley
Agree
3
Bio/Vote History
Autor
David Autor
MIT
Agree
6
Bio/Vote History
The Fed erred correctly on the side of labor market recovery over inflation risk. Inflation risk is now inflation reality. Recalculating...
Baicker
Katherine Baicker
University of Chicago
Uncertain
3
Bio/Vote History
Banerjee
Abhijit Banerjee
MIT
Uncertain
4
Bio/Vote History
Bertrand
Marianne Bertrand
Chicago
Disagree
1
Bio/Vote History
Brunnermeier
Markus Brunnermeier
Princeton
Agree
6
Bio/Vote History
The outcome will depend on the Fed reaction function and future fiscal policy.
Chetty
Raj Chetty
Harvard Did Not Answer Bio/Vote History
Chevalier
Judith Chevalier
Yale
Uncertain
5
Bio/Vote History
Cutler
David Cutler
Harvard
Uncertain
6
Bio/Vote History
Deaton
Angus Deaton
Princeton
Agree
4
Bio/Vote History
Duffie
Darrell Duffie
Stanford
Agree
8
Bio/Vote History
In expectation, long-run pressures are deflationary, but there is plenty of risk around the mean path, for the stated reasons.
Edlin
Aaron Edlin
Berkeley
Agree
1
Bio/Vote History
Eichengreen
Barry Eichengreen
Berkeley
Uncertain
5
Bio/Vote History
Einav
Liran Einav
Stanford
No Opinion
Bio/Vote History
Fair
Ray Fair
Yale
Agree
5
Bio/Vote History
I have a recent paper, "What Do Price Equations Say About Future Inflation?" which has higher inflation predictions than the Fed expects.
-see background information here
Finkelstein
Amy Finkelstein
MIT
Agree
1
Bio/Vote History
Goldberg
Pinelopi Goldberg
Yale
Uncertain
5
Bio/Vote History
Goolsbee
Austan Goolsbee
Chicago
Uncertain
5
Bio/Vote History
Greenstone
Michael Greenstone
University of Chicago
Agree
4
Bio/Vote History
Source of inflation is uncertain but current policy mix seems to assume too low prob that monetary/fiscal policy can make it worse
Hall
Robert Hall
Stanford
Agree
4
Bio/Vote History
Risk of default on debt
Hart
Oliver Hart
Harvard
Disagree
5
Bio/Vote History
Holmström
Bengt Holmström
MIT
Agree
6
Bio/Vote History
Hoxby
Caroline Hoxby
Stanford
Agree
10
Bio/Vote History
Hoynes
Hilary Hoynes
Berkeley
Uncertain
5
Bio/Vote History
Judd
Kenneth Judd
Stanford
Uncertain
6
Bio/Vote History
Inflation dropped as deficits rose in the 1980's. Increases in money did not ignite inflation after 2008.
Kaplan
Steven Kaplan
Chicago Booth
Strongly Agree
5
Bio/Vote History
Kashyap
Anil Kashyap
Chicago Booth
Agree
7
Bio/Vote History
Klenow
Pete Klenow
Stanford
Agree
5
Bio/Vote History
This is why markets expect the Fed to eventually tighten.
-see background information here
Levin
Jonathan Levin
Stanford
Agree
3
Bio/Vote History
Maskin
Eric Maskin
Harvard
Uncertain
4
Bio/Vote History
There are indeed inflationary risks, but the infrastructure act and the BBB bill may help ease long-term inflation.
Nordhaus
William Nordhaus
Yale
Strongly Disagree
9
Bio/Vote History
The Fed has the tools and the will, but it may take time because of inertia coming out of years of low inflation.
Obstfeld
Maurice Obstfeld
Berkeley
Agree
7
Bio/Vote History
Saez
Emmanuel Saez
Berkeley
Disagree
4
Bio/Vote History
Samuelson
Larry Samuelson
Yale
Agree
6
Bio/Vote History
Our old models suggest that massive deficits eventually beget inflation. But, this has not happened yet, so perhaps we need new models.
Scheinkman
José Scheinkman
Columbia University
Uncertain
5
Bio/Vote History
Would agree, if current fed funds rate and rate of asset purchases are maintained even if inflation fails to abate, but not otherwise.
Schmalensee
Richard Schmalensee
MIT
Uncertain
7
Bio/Vote History
I agree that current policy is too expansionary, but the Fed is shifting, and the statement seems way too strong.
Shapiro
Carl Shapiro
Berkeley
Strongly Agree
4
Bio/Vote History
Shimer
Robert Shimer
University of Chicago
Agree
7
Bio/Vote History
We have no recent experience in an environment with unanchored inflation expectations
Stock
James Stock
Harvard
Disagree
6
Bio/Vote History
Thaler
Richard Thaler
Chicago Booth
Uncertain
1
Bio/Vote History
Udry
Christopher Udry
Northwestern Did Not Answer Bio/Vote History