How hard should the Fed hit the brakes to bring inflation down? The answer to this question depends, in part, on just how damaging you think inflation is. And one reason to think that inflation is harmful is simply that most people – normal people, not CEOs or financiers – seem to really dislike it. If most people think steady inflation of 8% is worse than steady inflation of 2%, that is, in fact, a (non-dispositive) reason to think that 2% inflation is better than 8% inflation.
The United States has been, in general, a hard money country. This is generally speaking a good thing. Sure, it can go too far – inflation phobia can hurt employment and wages, and there are smart people who think the Fed’s 2% inflation target is too low – but having a general preference for hard money is certainly better than hyperinflation, and steady inflation is probably better than highly variable inflation.
The fact that America has been a hard money country is due in part to the fact that ordinary people dislike inflation and our political system has been successful at translating this preference into policy. Unhappiness about inflation – not horse race polls – is perhaps the main reason many observers expected a red wave in the election. People vote economic conditions, inflation is high, ergo, people will vote Republican.
There are many reasons the red wave did not materialize, but surely one is that in the grand scheme of things a year or so of moderate inflation following a pandemic is just not the end of the world. It’s certainly not as bad as a big spike in unemployment. Voters know this. I hope the Fed hears them.