Adam Posen, President of the Peterson Institute, forecasts that US inflation will surge back to 4% by the end of 2026. This prediction goes against the general consensus among economists who believe inflation is heading downwards, with the debate primarily revolving around the speed at which the Federal Reserve will reach its 2% target. Posen initially presented this thesis in a co-authored piece with Lazard's Peter Orszag.
Posen attributes this reacceleration of prices to several factors, including the lagged effects of tariffs, increased immigration, further fiscal easing measures, and a decline in the Federal Reserve's credibility. He argues that these combined forces will lead to a higher inflation rate, challenging the prevailing view that economic softening is underway.
The discussion, featured on Bloomberg's "Odd Lots" podcast, highlights Posen's strong disagreement with the idea that the US economy is simply cooling down. He emphasizes that the current economic indicators, when viewed through his lens, suggest a significant uptick in inflation is imminent rather than a gradual return to the Fed's target.
Separately, Posen has also voiced concerns regarding Federal Reserve Chair Jerome Powell's "rifle shot" speech at Jackson Hole. Posen found Powell's direct approach to addressing the labor market unsatisfying, arguing that the cooling labor market did not warrant such a forceful intervention and expressing worries about the potential risks that could materialize from this strategy.
This perspective contrasts with other views, such as that of Chicago Fed President Austan Goolsbee, who is concerned about the economy overheating. Goolsbee noted that inflation remains high and the 2% target is further away than in the previous year, pointing to a strange labor market and GDP growth primarily driven by AI and data center buildouts as signs of overheating.
