Opinion by Sebastian Mallaby: Where the Fed went wrong on inflation
. Workers’ fear of covid-19 was delaying the return to work and causing temporary bottlenecks.
With the benefit of hindsight, this was too optimistic. Forecasters who struck a gloomier note are now entitled to their victory dances. But the error counts as forgivable because the Fed confronted unprecedented questions: How many citizens would return to work? How fast would the government stimulus be spent? Many respected analysts agreed with the Fed that inflation would prove transitory.
The less forgivable mistake came at the start of this year. It was not a forecasting error, it was a failure of courage and a triumph of inertia. The Fed acknowledged inflation. But, anxious about upsetting financial markets and reluctant to grapple with the full implications of its error, it refused to rise to the challenge.
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