Government officials and economists were very late to the inflation party. They didn’t see it coming, dismissed it when its effects were obvious, and cast blame on the most bizarre causes once they realized inflation wasn’t going away.
How did such allegedly smart, insightful people – experts all – miss something so big?
More than a dozen economists, current and former administration officials, and former Fed officials — requesting anonymity to speak candidly about private discussions — point to a confluence of issues, including heavy Fed influence across the administration, overreliance on traditional forecasting, the political pressure to spend big, and a lack of urgency in deciding who would run the Federal Reserve and carry out its mission of managing inflation.
“It’s always going to be an issue in any White House, how the policy and politics interact,” said a former Fed official, who requested anonymity to discuss private discussions with the administration. “I just think they miscalculated.”
“Miscalculated” is a nice way of saying “they screwed up.” And there’s a good chance the screw ups may not be over:
The same models that underestimated inflation in 2021 now call for moderation by the end of 2022, right as midterm voters will have their say at the ballot box.
The problem with models is simple: Garbage in, garbage out. Expect a lot more garbage between now and Election Day.