By Paul Krugman / The New York Times
The economic news continues to be pretty good, especially compared with the dire forecasts many were making in late 2022. But you might not have gotten that message if you watch financial TV: It’s hard to spend 24/7 talking about the economy while saying “not much happened this week.” So commentators — and partisan media — seize on every hint of bad news.
And the public is reacting. Google searches for “stagflation” have spiked, much like they did in the spring of 2022.
So here’s what you need to know: There’s no stag out there and not much flation.
True, gross domestic product growth came in a bit low in the first quarter. But just about every serious analyst regarded this as statistical noise. More important, as we saw in Friday morning’s employment report, the U.S. economy is continuing its remarkable stretch of good job numbers and low unemployment.
What about inflation? The last few inflation reports have been a bit high, but much of that, again, is probably statistical noise. The New York Fed has a measure that tries to extract the signal from the noise; it basically says “there’s nothing to see here.”
Now, there are real and serious debates about inflation going on, but it’s important to realize how narrow, how small-bore, these debates are compared with the big arguments we were having a year and a half ago.
Inflation has clearly come way down without a recession, defying the pessimists; I can’t help mentioning that Janet Yellen, the treasury secretary, got a little snippy about Larry Summers the other day. But are we still on a glide path back to the Fed’s target of 2 percent inflation, or are we stalling out at around 3 percent inflation?
The Fed seems to think that we’re still on that glide path, but it left interest rates unchanged this week, and its statement was carefully hedged, noting that “there has been a lack of further progress” toward 2 percent.
An interesting question is what the Fed will do if inflation remains stalled modestly above its target. After all, 2 percent is a rather arbitrary number (blame New Zealand! really). Is it worth risking a recession to squeeze out those last few decimal points?
But that’s for the future. For now, you need to hold two thoughts in mind. First, we’ve had some disappointing inflation data lately. But despite this, we’re in a far better place than most analysts even thought possible not long ago.
This article originally appeared in The New York Times.
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