AUSTIN, Texas: In his Nov. 7, 2023 New York Times newsletter, economist Paul Krugman asks a good, albeit belated, question: Why did so many economists get the inflation outlook wrong? After all, the near-consensus among mainstream economists in recent years was that inflation would persist — and even accelerate — and that this justified substantial interest-rate hikes by the United States Federal Reserve (Fed). Yet the quasi-inflation of 2021–22 proved transitory.
Krugman poses his question with impeccable diplomacy, professing "respect" for three authors of a September 2022 paper published by the Brookings Institution (which was then promoted by Harvard University's Jason Furman) projecting that it would take at least two years of unemployment at 6.5 percent to bring inflation back to the Fed's self-imposed 2-percent target. But inflation had already peaked before the Brookings paper appeared and long before the Fed's rate hikes might have been felt. Over the next year, inflation petered out, even as unemployment remained below 4 percent. "Team Transitory" — which once briefly included US Treasury Secretary Janet Yellen — endured two years of derision, but it was correct all along.
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