Just how anchored are America’s inflation expectations?

SINCE DEMOCRATS proposed a $1.9trn fiscal stimulus in January, hawks have warned that America’s economy might overheat. With cheques for $1,400 now landing in bank accounts, President Joe Biden reportedly considering spending another $3trn on infrastructure and the Federal Reserve showing no sign of putting the brakes on the rebound from the pandemic, the predictions of impending doom are getting louder. The latest was delivered by Larry Summers, a former treasury secretary, on March 20th. Mr Summers sees it as more likely than not that the economy will suffer either from an inflation surge or from the crushing effects of higher interest rates. America, he says, has the least responsible economic policy in 40 years.The worst-case scenario painted by inflation hawks can be broken into stages. First, inflation will soon rise mechanically as numbers from the spring of 2020, when the economy and commodity prices slumped, fall out of comparisons with a year earlier. On that everyone agrees.