Krugman: Policymakers stumbled into Goldilocks

America rapidly restored full employment while experiencing a one-time jump in the level of prices without a sustained rise in inflation, the rate at which prices are rising. 

Not bad, especially considering all the dire predictions made along the way.

What actually happened was that the economy proved far more resistant to higher interest rates than the Fed expected, so growth kept chugging along and unemployment didn’t rise significantly. 

But inflation fell anyway, coming in below the Fed’s projections. 

So the economy surprised the Fed in two ways, both positive. Disinflation, it turned out, didn’t require a bulge in unemployment; but rate hikes, it turned out, didn’t damage employment as expected.

Yes: Policymakers stumbled into Goldilocks.

Paul Krugman newsletter New York Times 9 April 2024