Coronavirus Economy & Inflation: A Misguided Fear | National Review
The COVID-19 crisis, in short, has intensified an excess demand problem for the global medium of exchange. This has several implications for the U.S. economy. First, the dollar is likely to stay overvalued and spur ongoing U.S. trade deficits with the rest of the world. Second, the unmet demand for dollar-denominated assets will keep interest rates low and push the U.S. government toward more budget deficits. Finally, this phenomenon will probably create additional disinflationary pressures in the U.S. economy.
So, while there are reasons for concern over some of what the Fed is doing, we are far away from inflation rearing its ugly head again. Disinflation is a far more likely outcome over the next decade. Moreover, worrying about inflation now could prove harmful if it causes policymakers to take their focus off keeping the economy afloat while the public-health battle is being fought. We are in the midst of what is likely to be the deepest recession in U.S. history. This recession should be our main worry for now.
I don’t believe it but worth pondering.