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Opinion | The Coming Rage of the Money Hawks


Inflation in the United States has probably peaked.

I realize in saying that I risk coming across as the boy who cried “no wolf.” I called inflation wrong last year. Much of current inflation reflects huge price increases in sectors strongly affected either by pandemic distortions or, lately, by Russia’s invasion of Ukraine, but at this point measures that try to exclude these exceptional factors are also running high, suggesting that the U.S. economy as a whole is overheated:

But the economy is probably cooling off as the Federal Reserve’s monetary tightening gains traction. And the news flow on inflation has changed character. For most of the past year, just about every report on prices surprised on the upside. These days many, though not all, reports are surprising on the downside. Measures that attempt to gauge underlying inflation, like the “core” consumption deflator released this morning, are mostly, although not all, drifting down.

Furthermore, there is no hint in the data that inflation is becoming entrenched. Consumers expect a lot of inflation in the short run, but much less in the medium term:

Workers expect to see raises of only about 3 percent over the next year, barely above historical norms:

Markets have noticed the relatively good news on inflation. We can more or less directly calculate market expectations of inflation by looking at the “breakeven rate,” the interest rate spread between ordinary United States bonds and bonds that are indexed to protect investors against inflation. And breakeven rates have come down a lot over the past month or two:

Officials at the Federal Reserve have also noticed. They’re a long way from declaring victory and going home, however: Interest rate hikes are still very much on the agenda. But some officials are talking about a possible pause a few months from now, depending on what the data are showing at that point.

Monetary hawks are enraged. A few days ago the billionaire investor Bill Ackman attracted a lot of attention with a tweet declaring that markets are crashing because investors don’t believe the Fed will do its job:

While we don’t know for sure whether inflation itself is getting under control or not, Ackman’s claim that “inflation expectations are getting out of control” was clearly false given both market and survey data. But many others are echoing his furious attack on the central bank, as you can see just by searching “Fed behind the curve.”

So what’s going on here? To understand current inflation discourse, you need to be aware that there is a substantial group of economic commentators who always believe the Fed is printing too much money. They believed this during the depths of the Great Depression; they believed this in the aftermath of the 2008 global financial crisis.

At root, I’d argue, monetary permahawks are motivated by politics — by the fear that flexible use of the printing press will give too much room for big government, and also perhaps by a sense that printing money expropriates their hard-earned wealth. And hey, motivated reasoning can happen to anyone; it has certainly happened to me, although I try to fight it and admit it when I was wrong.

So how have the permahawks reacted to the inflationary surge of 2021-22? With stern expressions of concern, of course. But you didn’t have to do much reading between the lines to detect a fair bit of underlying glee that this time their proclamations of doom were finally coming true.

And some of them are clearly furious at any hint that the extent of the doom might be limited. They’ve spent years, even decades, preparing to celebrate — I mean deplore — stagflation. And though, as I wrote last week, we may well be in for a brief period of high(ish) inflation and rising unemployment, this probably won’t be the stagflation they were looking for.

So let me make a conditional prediction. If inflation does come down, as, for example, the Congressional Budget Office expects, the volume of dire warnings about runaway inflation will actually increase, at least for a while. The good news is that this wave of doomsaying will probably be, um, transitory.


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