Key Takeaways

• Inflation is projected to reach 4% by the end of the year, driven by current economic trends.
• The trajectory of inflation is upward, suggesting ongoing economic pressures.
• Labor market issues are more about mismatches than a slowdown in demand.
• African American unemployment is affected by specific government spending changes.
• Unemployment among younger individuals has been steadily increasing since 2023.
• Post-COVID hiring and rematching processes contribute to youth unemployment trends.
• Inflation forecasts consider labor market conditions, policy impacts, and external shocks.
• Tariffs and migration policies influence inflation with a delayed effect.
• Economic decisions are influenced by uncertainty, affecting both businesses and workers.
• Inflationary pressures from policies are expected to become more pronounced.
• The rise in youth unemployment is linked to broader economic shifts post-COVID.
• Policy impacts on inflation are not immediate, reflecting a lag in economic responses.
• Businesses require time to navigate uncertainty before making irreversible decisions.
• Anti-migration policies and tariffs are significant factors in current inflationary pressures.
• Understanding labor market dynamics is crucial for interpreting unemployment trends.

Guest intro

Adam S. Posen is president of the Peterson Institute for International Economics. From 2009 to 2012, he served as an external voting member of the Bank of England’s Monetary Policy Committee, where he advocated for quantitative easing and accurately forecast global inflation developments. He co-authored Inflation Targeting with Ben Bernanke, Laubach, and Mishkin while at the Federal Reserve Bank of New York.

Inflation trends and forecasts

• It’s realistic to expect 4% inflation by the end of the year on headline CPI.

  — Adam Posen

• The direction of inflation is upward, indicating persistent economic pressures.
• Inflation forecasts include labor market conditions and potential supply shocks.

• If I’m making a forecast for inflation over the next year or two there’s how soft or tight the labor market is…

  — Adam Posen

• Tariffs and migration policies contribute to inflation with a delayed impact.

• We never should have expected the impact of these policies to be so fast…

  — Adam Posen

• Inflationary pressures from anti-migration policies and tariffs are expected to accelerate.

• I think these inflationary pressures from the anti migration policy and tariffs are already here…

  — Adam Posen

Labor market dynamics

• Current labor market issues reflect mismatches rather than a demand-side slowdown.

• I think are not indicative of a demand side slowdown they’re indicative of what economists call mismatch…

  — Adam Posen

• African American unemployment is influenced by specific government spending reallocations.

• I think part of the reason African American unemployment is up… is because of this hit to this specific part of the workforce.

  — Adam Posen

• Youth unemployment has been rising steadily since 2023.

• The rise in younger people unemployment college age younger people unemployment has been a very steady rise for a few years…

  — Adam Posen

• Post-COVID hiring and rematching processes contribute to youth unemployment.

• That has to do with the hiring and rematching coming out of covid…

  — Adam Posen

Economic policy impacts

• Economic decisions are influenced by uncertainty, affecting both businesses and workers.

• It takes time to make up your mind what you’re gonna do even if you’re a big company let alone if you’re a small company…

  — Adam Posen

• Policy impacts on inflation are not immediate, reflecting a lag in economic responses.

• We never should have expected the impact of these policies to be so fast… they were building in a one year lag from when the policies took effect.

  — Adam Posen

• Anti-migration policies and tariffs are significant factors in current inflationary pressures.

• I think these inflationary pressures from the anti migration policy and tariffs are already here…

  — Adam Posen

• Businesses require time to navigate uncertainty before making irreversible decisions.

• These are irreversible decisions it takes time and you wanna see uncertainty change or at least get settled before you make the decision.

  — Adam Posen