Inflation emerges as defining economic challenge of Biden's term

“This is not the inflation of the 1970s. Pandemic macroeconomics is a new macroeconomics. We are facing new and unprecedented challenges, and we cannot look to past data to get a sense of how to calibrate our choices,” said Tyler Cowen, an economist at George Mason University. “We are to some extent flying blind. … We should be genuinely uncertain here about what to do next.”

This inflationary burst has no single cause and no obvious solution. Trillions of dollars in federal aid approved by Congress in response to the pandemic have led American consumers and companies to purchase more goods than ever before, putting new strains on global supply chains to accommodate the soaring volume. But that higher demand has collided with shortages in workers, supplies and transportation capacity — challenges caused in part by the pandemic as well as long-standing structural deficiencies in the national economy…

Economists are particularly worried the inflation acceleration from September to October will continue, ultimately leading to sustained price increases and a shift in Americans’ expectations that become enormously challenging for policymakers to arrest.

“Nobody has a clear enough crystal ball to say if this will be the peak or is it going to keep accelerating,” said Matthew J. Slaughter, an economist at Dartmouth College. “You get to moderate levels of price inflation, and what can happen is more businesses and households adjust their expectations and price setting — and there’s no law of physics for how they take hold.”