Deflation (Economics)

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Prices for Some Goods Are Actually Falling This Holiday Season

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As inflation slows, prices for some physical goods are falling outright, which could lift consumers’ spirits.American shoppers, burned by more than two years of rapid inflation, are getting some welcome relief this holiday season: Prices on many products are falling.Toys are almost 3 percent cheaper this Christmas than last, government data shows. Sports equipment is down nearly 2 percent. Bigger-ticket items are also showing price declines: Washing machines cost 12 percent less than a year ago, for example. And eggs, whose meteoric rise in prices last winter became a prime example of the country’s inflation problem, are down 22 percent over the past year.Consumer prices, in the aggregate, are still rising, though not nearly as quickly as a year ago. Most groceries still cost more than they did a year ago. So do most services, such as restaurant meals, haircuts and trips to the dentist. And housing costs, the biggest monthly expense for most Americans, are still rising for both renters and home buyers. Overall, the price of physical goods is flat over the past year, while the price of services is up a bit more than 5 percent.Still, economists view the moderation in goods prices as an important step toward putting the high inflation of the past two and a half years more firmly in the rearview mirror. They expect it to continue: Most forecasters say prices for physical products will keep falling next year, especially prices for longer-lasting manufactured goods, where the recent declines have been largest. That should help price increases overall to ease.“We’re just kind of in the beginning of that phase, and we should continue to see downward pressure on prices in this category,” said Michelle Meyer, chief economist for Mastercard.For consumers, who have been dour about the economy despite low unemployment, falling prices on many goods could provide a psychological lift. After the rapid inflation of the past few years, a mere slowdown in price increases might not feel like much to celebrate. But seeing prices fall could be a different story — especially because some of the biggest recent declines have been in categories that consumers tend to pay the most attention to, such as gasoline. (The price of regular gas, which topped $5 a gallon nationally in June 2022, has fallen to just over $3 on average, according to AAA.)Most groceries still cost more than they did a year ago. Maansi Srivastava/The New York Times“People will key in on certain prices,” said Neale Mahoney, a Stanford University economist who recently left a role in the Biden administration. “We know that people will overweight certain things.”The price of many goods soared in 2021, fed by a surge in demand from consumers flush with pandemic relief checks and by supply chain disruptions that limited supplies of many products, especially those from overseas.Many economists initially expected a quick reversal, but instead prices kept rising. Supply chains took longer to return to normal than expected, and Russia’s invasion of Ukraine led to a spike in energy prices in 2022. At the same time, consumer demand for goods remained high, and many companies took advantage of the opportunity to push through price increases and pad their profit margins.Now, however, many of those forces are beginning to fade. Supply chains have largely returned to normal. Oil prices have fallen. Economic weakness in China and other countries has held down demand for many raw materials, which feeds through to consumer prices.Softer demand from American consumers could also be playing a role. The Federal Reserve has raised interest rates repeatedly since early last year in an effort to curb spending and control inflation. Consumers have so far proved remarkably resilient, but retailers in recent months have reported that shoppers have increasingly traded down to cheaper items or waited for sales before buying — trends that could accelerate if the economy cools further next year.“We think that the consumer is going to be looking for value, and that’s because they are very sensitive to price,” Carlos E. Alberini, chief executive of Guess, the fashion retailer, told investors last month. The company has “revisited some of the pricing structure we have in all brands,” he added.The price of services is up a bit more than 5 percent for such things as restaurant meals, haircuts and trips to the dentist.Hiroko Masuike/The New York TimesSome toy manufacturers and retailers that sell toys have also said they expect sales this season to be less robust than in years past and have leaned into advertising their products’ affordability.At many companies, price cuts have taken the form of Black Friday sales and holiday promotions that are larger for some categories of items than in past years. At Signet Jewelers, the big diamond retailer, sales fell in the third quarter, and the company recently said that it expected sales to be lower this holiday season than last year in part because of “elevated promotional activity.”“It’s been a different holiday season,” Virginia C. Drosos, Signet’s chief executive, told investors on a conference call this month. Instead of shopping early, customers are waiting to make their purchases and are looking for deals, she said.Matt Pavich, senior director of innovation and strategy for Revionics, a company that uses artificial intelligence to help retailers set prices, said companies were trying to cut prices before their competitors do.“As prices come down, there’s going to be the race to bring prices down more, get the credit for that,” he said. “We’re going to see retailers really trying to win back consumers’ trust.”Still, prices for most products remain well above where they were before the pandemic. A dozen eggs cost about 50 cents more than in February 2020. Used car prices, another prominent example of pandemic sticker shock, have fallen more than 10 percent from their peak early last year but are 37 percent above where they were in February 2020.Services prices are still climbing more quickly than before the pandemic. Some economists say that goods prices will need to fall further for overall inflation to return to the Federal Reserve’s target of 2 percent a year.“We need pretty substantial deflation, and I wouldn’t call what we’re seeing ‘substantial,’” said Wendy Edelberg, director of the Hamilton Project, an economic policy division of the Brookings Institution. “It’s not even substantial in a historical context.”Indeed, prices of durable goods fell much of the two decades that preceded the pandemic. Long-term trends such as globalization and automation have tended to push down manufacturing costs. Intense competition among retailers, especially with the rise of online shopping, meant those savings were mostly passed on to consumers.Services prices, on the other hand, rarely fall, in part because wages account for a much larger share of the cost of most services. During the decade before the pandemic, services prices gradually rose while goods prices were flat or fell, resulting in an extended period of stable, moderate inflation.Economists don’t expect to see outright deflation, in which prices fall for both goods and services. That’s a good thing: Overall price declines are generally viewed as economically dangerous, if they last.“When demand in the economy is weak, the last thing you want is someone to say, ‘I’m not going to buy that car today because it’s going to be $600 less expensive in six months,’” said Karen Dynan, an economist at Harvard.Brittany Greeson for The New York TimesThere are a few reasons. For starters, in theory, deflation could prompt consumers to hold off on spending, touching off a downward spiral. People may be unlikely to buy today what they expect to be cheaper tomorrow. Once deflation takes hold, it can be difficult to escape: Japan has been stuck in a deflationary pattern since the late 1990s.“When demand in the economy is weak, the last thing you want is someone to say, ‘I’m not going to buy that car today because it’s going to be $600 less expensive in six months,’” said Karen Dynan, an economist at Harvard.For another, companies are unlikely to raise wages in a world where they cannot charge more. And if wages are not going up — or are even going down — it will be harder for households to keep up with fixed bills, like mortgage interest payments.But while broad-based price declines are a problem, most economists view the more limited declines happening now as a sign that the economy is gradually moving past the disruptions of the pandemic.“Supply chains have basically normalized,” said Neil Dutta, head of economic research at Renaissance Macro. “Household demand behavior has basically normalized, the dollar is still pretty strong. I wouldn’t see a reason why goods prices would go higher.” More

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    Inflation Has Arrived, but Washington Isn’t Racing to Limit Price Pops

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    Policymakers, now more attuned to the costs of choking off growth early, are sticking by a patient approach as prices rise.Inflation has long been the boogeyman haunting the nightmares of economic policymakers from both parties — and controlling it has been a top economic priority. But as the economy reopens from pandemic shutdowns and prices spike, it is becoming clear just how much that conventional wisdom has shifted in recent years.After three decades of relative price stability and a long stretch of weak price gains, many economists and lawmakers had in recent years come to believe that trying too hard to avoid overheating the economy created its own risk by prematurely cooling growth and leaving workers on the sidelines.The tools that policymakers used to prevent overheating — raising interest rates and reining in government spending — also contributed to less hiring and slower wage growth. Policymakers have paid increasing attention to those trade-offs, especially as chronically slow price gains across the globe made government efforts to control inflation seem somewhere between futile and self-defeating.That view has remained mostly intact at the Federal Reserve and the White House even as prices pop, virus variants threaten to perpetuate supply-chain bottlenecks and some price increases, like rising rents, create the risk that high inflation might last for a while.The Biden administration is emphasizing the benefits of the current moment, which include higher wages and more bargaining power for workers, as it insists that inflation will fade over time. The Fed, which meets this week, is openly nervous about rising prices, but it isn’t doing anything abrupt to counteract them. It says it needs to weigh the risk of inflation against the threat of slowing a labor market that is still missing nearly seven million jobs compared with prepandemic levels.Republicans are condemning rising prices, warning that the administration needs to rein in its spending plans and that the Fed should withdraw support. Even some left-leaning economists have warned that things could get out of control and that central bank officials need to be on watch.Here is a snapshot of what is happening with inflation, including the risks, the rewards and how policymakers are thinking through a strange economic moment.Prices are up this year, and pretty markedly.Inflation is up across a variety of measures, and by significantly more than economists predicted earlier this year.The Consumer Price Index, a Labor Department gauge of how much a basket of goods and services costs to buy, rose 5.4 percent in the year through June. The Fed prefers a separate measure, the Personal Consumption Expenditures index. That gauge tracks both out-of-pocket expenses and the cost of things people consume but don’t directly pay for, like medical care. It climbed 3.9 percent through May.Prices have risen by more than Fed officials expected, based on both their public statements and their economic projections this year.Why the big jump? Some of it owes to temporary data quirks, which were expected to push inflation higher this year. Part of it has come as prices for airline tickets, hotel rooms and other pandemic-affected purchases rebound from last year, also as anticipated. But the surprisingly large part of the increase has come from a surge in consumer demand that is straining delivery routes and outstripping available supply for electronics, housing and laundry machines.That portion of the inflation is more tied to government policies, which put money into consumers’ pockets — and its future trajectory is a lot less predictable. Economists think the bottlenecks will fade, but by how much and how long it will take is uncertain.Those price increases could have a downside.Whether today’s inflation matters and warrants a response will depend on several factors.If, as the White House predicts, quick price gains fade as the economy returns to normal, they shouldn’t be terribly problematic. Households are likely to have to spend a little bit more on some goods and services but may also find that they are earning more. Workers are now seeing decent wage gains, though not quite enough to outpace price gains, and the labor market is expected to continue strengthening as inflation fades.The biggest price gains have also been concentrated in just a few categories, like used cars. Most families do not buy automobiles that often, so the hit from higher costs will not be as salient for consumers as an across-the-board rapid rise in prices for everything consumers buy, like clothing and milk.But if consumers and businesses come to expect higher prices and start accepting bigger price tags and demanding higher wages, that could broaden inflation and keep it elevated. That would be a problem. Rapid inflation makes life hard for people who live on savings, like retirees. If it outstrips pay gains, it can erode a consumer’s ability to buy goods and services. And if inflation becomes hard to predict, as it did in the 1970s and 1980s, it makes planning for the future hard for businesses and households.There are risks that inflation could take time to get back to normal.There are real reasons to worry that inflation could stick around. Supply-chain snarls are expected to fade with time, but new Covid-19 variants and renewed lockdowns in some countries could keep global trade chains from getting back to normal. That could keep prices for goods elevated. (On the flip side, Jason Furman at Harvard points out that renewed lockdowns would also probably drag down consumer demand, which could lead to softer price pressures.)There are other hot inflation risks. Wages are rising, which might feed into faster prices as employers try to cover costs. Rents — which were depressed — are accelerating, potentially a stickier source of inflationary pressure.If inflation becomes pernicious, the Fed has tools to contain it. The central bank is already coming up with a plan to slow its big bond purchases, which keep longer-term borrowing cheap and lift markets. It could also raise its main interest rate, which would trickle through the economy to slow lending and spending.“One way or another, we’re not going to be going into a period of high inflation for a long period of time, because, of course, we have tools to address that,” Jerome H. Powell, the Fed chair, testified this month. “But we don’t want to use them in a way that is unnecessary, or that interrupts the rebound of the economy.”A job fair in St. Louis last month. The Fed is nervous about rising prices, but it says it also needs to weigh the risk of slowing a labor market still missing seven million workers.Whitney Curtis for The New York TimesBut there are also real risks to premature action.As Mr. Powell alluded to, policymakers do not want to move too hastily in response to the recent data. Many officials argue that it does not make sense to react to what is expected to be a short-lived price pickup by dialing back fiscal ambitions or weakening monetary support — policy changes that would reduce demand and lead to slower hiring down the road.Should the Fed pull back support for the economy before many of the 6.8 million jobs that have gone missing since the start of the pandemic return, it could lead to a painful situation in which workers end up stuck out of work.That would cost families paychecks, hurt the country’s potential for growth and tip the economic scales toward employers, who benefit when many available workers are competing for jobs.For decades, “the sensible adult consensus — that the most important thing was to protect against inflation — had a huge cost, and that cost was wages stagnating,” said Benjamin Dulchin, director of the organizing group Fed Up. “The Fed can err on the side of corporate interests and keeping wages lower, or it can err on the side of workers’ interests.”Today’s inflation could offer benefits.Inflation does have some winners. People who owe debts find that they are easier to pay off, and middle-class households who own houses may find that their values appreciate. Research has suggested that inflation in advanced economies can shrink inequality, for instance.But that isn’t even the argument the Fed and the White House are making: They simply do not expect the higher prices to last forever, and they think the short-term costs are worth the long-term benefits of helping the economy through a tough period.Some Democrats think that voracious hiring bolstered by government spending and central bank support will give workers the power to bargain for higher wages — an ability that might last beyond the inflationary phase. And they have been trying to foster a swift recovery from the pandemic downturn, getting people back into jobs and businesses back into full swing quickly.Officials are being patient, even as inflation surprises them.Government officials are setting economic policy today with an eye on the last battle. After the deep 2007-9 recession, the government cut back on spending early and monetary policymakers lifted interest rates before price gains had returned to their 2 percent annual inflation goal. Price gains proceeded to get stuck below that target, and the labor market recovery may have taken longer than it needed to, since the economy had less support.As that episode underlined, slow-moving global trends — including aging demographics and free trade — seem to keep a lid on price gains these days. In Japan and in Europe, policymakers have spent years battling to coax inflation higher. They are worried in part by the looming threat of deflation, which discourages consumption and crushes debtors, who find their pay stagnating or declining as their debt loads remain unchanged.America’s current bout of price pressures actually seems to be helping to guide consumer expectations, which had been slipping lower, back into the comfort zone.And a few heady inflation numbers are a good problem to have, if you ask Kenneth Rogoff, a Harvard economist. The globe just experienced a devastating pandemic that was expected to wreck the economy.“In the current situation, the fact that the economy is booming and they didn’t quite plan for it is still a blessing,” he said. “It’s a rich man’s problem that we’re getting inflation.” More

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    Inflation? Not in Japan. And That Could Hold a Warning for the U.S.

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    If the United States’ current bout of rising prices soon eases, its economy could fall back into the cycle of weak inflation that preceded the pandemic — a situation much like Japan’s.TOKYO — In the United States, everyone is talking about inflation. The country’s reopening from the coronavirus pandemic has unleashed pent-up demand for everything from raw materials like lumber to secondhand goods like used cars, pushing up prices at the fastest clip in over a decade.Japan, however, is having the opposite problem. Consumers are paying less for many goods, from Uniqlo parkas to steaming-hot bowls of ramen. While in the United States average prices have jumped by 5.4 percent in the past year, the Japanese economy has faced deflationary pressure, with prices dipping by 0.1 percent in May from the previous year.To some extent, the situation in Japan can be explained by its continued struggles with the coronavirus, which have kept shoppers at home. But deeper forces are also at play. Before the pandemic, prices outside the volatile energy and food sectors had barely budged for years, as Japan never came close to meeting its longtime goal of 2 percent inflation.It wasn’t for lack of trying. Over nearly a decade, Japanese policymakers have wielded nearly every trick in the economist’s playbook in an effort to coax prices higher. They have juiced the economy with cheap money, spent huge sums on fiscal stimulus like public works, and lowered interest rates to levels that made borrowing nearly free.But as Japan has learned the hard way, low inflation can be an economic quagmire. And that experience carries a warning for the United States if its current bout of inflation eases, as many economists expect, and its economy falls back into the cycle of weak inflation that preceded the pandemic.“Most economists, me included, are pretty confident that the Fed knows how to bring inflation down,” including by raising interest rates, said Joshua Hausman, an associate professor of public policy and economics at the University of Michigan who has studied Japan’s economy.However, “it’s much less clear, partly because of Japan’s experience, that we’re very good at bringing inflation up,” he added.For consumers, falling prices sound like a good thing. But from the perspective of most economists, they are a problem.Consumers are paying less for many goods, from Uniqlo parkas to steaming-hot bowls of ramen.Kazuhiro Nogi/Agence France-Presse — Getty ImagesInflation, they like to say, greases the economy’s gears. In small amounts, it increases corporate profits and wages, stimulating growth. It can also reduce the burden of debt, bringing down the relative costs of college loans and mortgages.Japan’s inability to lift inflation is “one of the biggest unsolved challenges in the profession,” said Mark Gertler, a professor of economics at New York University who has studied the issue.One popular explanation for the country’s trouble is that consumers’ expectations of low prices have become so entrenched that it’s basically impossible for companies to raise prices. Economists also point to weakening demand caused by Japan’s aging population, as well as globalization, with cheap, plentiful labor effectively keeping costs low for consumers in developed countries.The picture once looked very different. In the mid-1970s, Japan had some of the highest inflation rates in the world, approaching 25 percent.It wasn’t alone. Runaway prices set off by the 1970s oil crisis defined the era, including for a whole generation of economists who were groomed to believe that the most likely threat to financial stability was rapid inflation and that interest rates were the best tool to combat it.But by the early 1990s, Japan began experiencing a different issue. An economic bubble, fueled by a soaring stock market and rampant property speculation, burst. Prices began to fall.Japan attacked the problem with innovative policies, including using negative interest rates to encourage spending and injecting money into the economy through large-scale asset purchases, a policy known as quantitative easing.Shops and restaurants closed during a state of emergency in Osaka, Japan, in May. To some extent the situation in Japan can be explained by its continued struggles with the coronavirus.Carl Court/Getty ImagesIt seemed to do little good. Still, economists at the time saw Japan’s experience not as a warning to the world, but as an anomaly produced by bad policy choices and cultural quirks.That began to change with the financial crisis of 2008, when inflation rates around the world plummeted and other central banks adopted quantitative easing.The problem has been most notable in Europe, where inflation has averaged 1.2 percent since 2009, economic growth has been weak and some interest rates have been negative for years. During the same period, U.S. inflation averaged just below 2 percent. The Federal Reserve has kept its main interest rate at close to zero since March 2020.Some prominent economists viewed the low inflation as a sign that the U.S. and E.U. economies might be on the brink of so-called secular stagnation, a condition marked by low inflation, low interest rates and sluggish growth.They have worried that those trends will deepen as both economies begin to gray, potentially reducing demand and pushing up savings rates.In 2013, under newly elected Prime Minister Shinzo Abe, Japan began its most ambitious effort to tackle its weak economic growth and low inflation.The government embarked on a grand experiment of huge monetary and fiscal stimulus, buying enormous quantities of equities and lowering interest rates in hopes of encouraging borrowing and putting more money into the economy. As the supply of cash increased, the thinking went, its relative value would decline, effectively driving up prices. Flush with money, consumers and companies alike would spend more. Voilà, inflation.Former Prime Minister Shinzo Abe leaving his last cabinet meeting in Tokyo last year. Under Mr. Abe, Japan began an ambitious but unsuccessful effort to tackle its weak inflation.Kazuhiro Nogi/Agence France-Presse — Getty ImagesTo encourage spending, Japan adopted a policy, known as forward guidance, aimed at convincing people that prices would go up as it pledged to do everything in its power to achieve its inflation target of 2 percent.But the government’s efforts at persuasion fell short, so there was little urgency to spend, said Hiroshi Nakaso, a former deputy governor of the Bank of Japan and head of the Daiwa Institute of Research.Japan found itself in a vicious circle, said Takatoshi Ito, a professor of international and public affairs at Columbia University, who served on Japan’s Council on Economic and Fiscal Policy.Consumers came to expect “stable prices and zero inflation,” he said, adding that as a result, “companies are afraid of raising prices, because that would attract attention, and consumers may revolt.”The sluggish economy made companies reluctant to raise wages, he said, “and because real wages didn’t go up, probably consumption didn’t go up. So there was no increase for demand for products and services.”As inflation hardly moved, some economists wondered if Japan’s stimulus had been too conservative, even as it racked up one of the world’s largest debt burdens.Policymakers, citing a need to pay off the country’s debts and meet the growing costs of caring for an aging population, hedged against the spending by twice raising the country’s consumption tax, apparently weakening demand.A bus station in Tokyo. Economists point to Japan’s aging population as one reason for weakening demand.Charly Triballeau/Agence France-Presse — Getty ImagesIn the end, Mr. Abe’s experiment, known as Abenomics, may not have been as successful as hoped. But it has informed policymakers’ response to the pandemic, said Gene Park, a professor of political science at Loyola Marymount University in Los Angeles who studies Japan’s monetary policy.One takeaway, he said, is that governments could spend more than they had ever thought possible without setting off a rapid rise in inflation. Another is that they might have to spend considerably more than they had once considered necessary to stimulate growth.Japan “has given the U.S. more freedom to experiment with bolder measures,” Mr. Park said.During the pandemic, Japan, too, has tried to apply the lessons learned since 2013.The government has paid shops and restaurants to stay closed, handed out cash to every person in the country, and financed zero-interest loans for struggling businesses. Prices fell anyway. That was partly at the behest of the government itself, which recently pressured telecom companies to lower mobile phone fees it deemed too high. Most Japanese consumers are also still waiting to be vaccinated against the coronavirus, holding back economic activity.Even after the pandemic wanes, however, Japan’s inflation rates are likely to stay low, said Sayuri Shirai, an economics professor at Keio University in Tokyo and a former board member of the Bank of Japan.After all, the primary problem remains unchanged: No one is really sure why prices have stagnated.“The central bank probably doesn’t want to say that they cannot control inflation,” Ms. Shirai said. “Therefore, this issue has just been left without a clear discussion.” More

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    Fear of Inflation Finds a Foothold in the Bond Market

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    There is little evidence for a big jump in prices, but some economists and bond investors fear President Biden’s policies could lead to inflation.The so-called bond vigilantes may be back, 30 years after they led a sell-off in Treasury securities over the prospect of higher government spending by a new Democratic administration.The Federal Reserve has downplayed the risk of inflation, and many experts discount the danger of a sustained rise in prices. But there is an intense debate underway on Wall Street about the prospects for higher inflation and rising interest rates.Yields on 10-year Treasury notes have risen sharply in recent weeks, a sign that traders are taking the inflation threat more seriously. If the trend continues, it will put bond investors on a collision course with the Biden administration, which recently won passage of a $1.9 trillion stimulus bill and wants to spend trillions more on infrastructure, education and other programs.The potential confrontation made some market veterans recall the 1990s, when yields on Treasury securities lurched higher as the Clinton administration considered plans to increase spending. As a result, officials soon turned to deficit reduction as a priority.Ed Yardeni, an independent economist, coined the term bond vigilante in the 1980s to describe investors who sell bonds amid signs that fiscal deficits are getting out of hand, especially if central bankers and others don’t act as a counterweight.As bond prices fall and yields rise, borrowing becomes more expensive, which can force lawmakers to spend less.“They seem to mount up and form a posse every time inflation is making a comeback,” Mr. Yardeni said. “Clearly, they’re back in the U.S. So while it’s fine for the Fed to argue inflation will be transitory, the bond vigilantes won’t believe it till they see it.”Yields on the 10-year Treasury note hit 1.75 percent last week before falling back this week, a sharp rise from less than 1 percent at the start of the year.Not all the sellers necessarily oppose more government spending — some are simply acting on a belief that yields will move higher as economic activity picks up, or jumping on a popular trade. But the effect is the same, pushing yields higher as prices for bonds fall.Yields remain incredibly low by historical standards and even recent trading. Two years ago, the 10-year Treasury paid 2.5 percent — many bond investors would happily welcome a return to those yields given that a government note bought today pays a relative pittance in interest. And during the Clinton administration, yields on 10-year Treasurys rose to 8 percent, from 5.2 percent between October 1993 and November 1994.Still, Mr. Yardeni believes the bond market is saying something policymakers today ought to pay attention to.“The ultimate goal of the bond vigilante is to be heard, and they are blowing the whistle,” he said. “It could come back to bite Biden’s plans.”Yet evidence of inflation remains elusive. Consumer prices, excluding the volatile food and energy sectors, have been tame, as have wages. And even before the pandemic, unemployment plumbed lows not seen in decades without stoking inflation.Indeed, the bond vigilantes remain outliers. Even many economists at financial firms who expect faster growth as a result of the stimulus package are not ready to predict inflation’s return.“The inflation dynamic is not the same as it was in the past,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago. “Globalization, technology and e-commerce all make it harder for firms to increase prices.”What’s more, with more than nine million jobs lost in the past year and an unemployment rate of 6.2 percent, it would seem there is plenty of slack in the economy.That’s how Alan S. Blinder, a Princeton economist who was an economic adviser to President Bill Clinton and is a former top Fed official, sees it. Even if inflation goes up slightly, Mr. Blinder believes the Fed’s target for inflation, set at 2 percent, is appropriate.“Bond traders are an excitable lot, and they go to extremes,” he said. “If they are true to form, they will overreact.”Indeed, there have been rumors of the bond vigilantes’ return before, like in 2009 as the economy began to creep out of the deep hole of the last recession and rates inched higher. But in the ensuing decade, both yields and inflation remained muted. If anything, deflation was a greater concern than rising prices.It is not just bond traders who are concerned. Some of Mr. Blinder’s colleagues from the Clinton administration are warning that the conventional economic wisdom hasn’t fully accepted the possibility of higher rates or an uptick in prices..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Robert E. Rubin, Mr. Clinton’s second Treasury secretary, echoed that concern but took pains to support the stimulus package.“There is a deep uncertainty,” Mr. Rubin said in an interview. “We needed this relief bill, and it served a lot of useful purposes. But we now have an enormous amount of stimulus, and the risks of inflation have increased materially.”Mr. Rubin acknowledged that predicting inflation was very difficult, but he said policymakers ought to be ready to fight it. “If inflationary pressures do take off, it’s important to get ahead of them quickly before they take on a life of their own.”The Federal Reserve has plenty of options. Not only is it buying up debt, which keeps yields down, but the Fed chair, Jerome H. Powell, has called for keeping monetary policy relatively loose for the foreseeable future. If higher prices do materialize, the Fed could halt asset purchases and raise rates sooner.“We’re committed to giving the economy the support that it needs to return as quickly as possible to a state of maximum employment and price stability,” Mr. Powell said at a news conference last week. That help will continue “for as long as it takes.”While most policymakers expect faster growth, falling unemployment and a rise in inflation to above 2 percent, they nonetheless expect short-term rates to stay near zero through 2023.But the Fed’s ability to control longer-term rates is more limited, said Steven Rattner, a veteran Wall Street banker and former New York Times reporter who served in the Obama administration.“At some point, if this economy takes off bigger than any one of us expect, the Fed will have to raise rates, but it’s not this year’s issue and probably not next year’s issue,” he said. “But we are in uncharted waters, and we are to some extent playing with fire.”The concerns about inflation expressed by Mr. Rattner, Mr. Rubin and others has at least a little to do with a generational angst, Mr. Rattner, 68, points out. They all vividly remember the soaring inflation of the 1970s and early 1980s that prompted the Fed to raise rates into the double digits under the leadership of Paul Volcker.The tightening brought inflation under control but caused a deep economic downturn.“People my age remember well the late 1970s and 1980s,” Mr. Rattner said. “I was there, I covered it for The Times, and lived through it. Younger people treat it like it was the Civil War.”Some younger economists, like Gregory Daco of Oxford Economics, who is 36, think these veterans of past inflation scares are indeed fighting old wars. Any rise in inflation above 2 percent is likely to be transitory, Mr. Daco said. Bond yields are up, but they are only returning to normal after the distortions caused by the pandemic.“If you have memories of high inflation and low growth in the 1970s, you may be more concerned with it popping up now,” he said. “But these are very different circumstances today.” More