Claudia Sahm on what is driving inflation in America

THE PAST few years have once again demonstrated that blunt tools—such as the government sending out cheques and pushing down interest rates—affect how much consumers and businesses spend. But it is difficult to fine-tune such policies without the benefit of hindsight. Even after the fact, it can be hard to analyse what should have been done. Inflation was not transitory, but neither was covid-19. And the stresses the pandemic put on the global economy were far-reaching. What does that mean for policy design in the future?

Economic support in response to the global economic crisis of 2007-09 was too little. This time, perhaps it was too much. But the debate among macroeconomists must recognise the need to improve how we combine our blunt tools with crisis-specific policies. Pushing up demand is more straightforward than fixing mortgage markets or containing a pandemic, but those crisis-specific measures are keys to an even and sustainable recovery.