Economists around the world, from the spendthrifts to the most fiscally conservative, largely agreed that the coronavirus pandemic required a big and quick response to avoid a full-blown global depression.

They also reached a consensus on another point: the hangover is real.

From global inflation to interest rate risk and currency shocks in developing countries, from misdirected spending to rising US debt, research from global organizations like the International Monetary Fund and think-tanks like the Brookings Institution now point to Covid-era spending aftershocks as new economic risks.

At the Federal Reserve’s Jackson Hole annual research conference in Wyoming last month, IMF First Deputy Managing Director Gita Gopinath and Bank for International Settlements (BIS) General Manager Agustin Carstens warned that inflation A higher price can be difficult to dislodge, ushering in an era of price and financial market volatility.

A Brookings conference earlier this month discussed a host of post-pandemic issues, concluding that:

• The roughly $5 trillion in US government spending was likely overkill and, while not entirely responsible, exacerbated the 40-year highest inflation the Fed has been grappling with.
• Controlling inflation may require a much larger-than-expected rise in the US unemployment rate.
• A global shock triggered by the rising dollar is already unfolding in the wake of the Fed’s late and large rate hikes.

crisis after crisis

Research presented at the Brookings meeting concluded that Covid-19 relief payments fueled a surge in durable goods purchases early in the pandemic, but with the signing of the third round of stimulus in early 2021, little was being done. spent.

The money has helped as a kind of insurance for some families, researchers such as Massachusetts Institute of Technology (MIT) finance professor Jonathan Parker and two economists at the US Bureau of Labor Statistics have concluded.

But “the small response of short-term spending and its pattern suggest that the (economic impact payments) went to many people who did not need the additional funds.”

“From a demand management perspective, unspent payments contributed to strong household balance sheets over the past year, a period of strong demand and rising inflation.”

Another article estimated that just President Joe Biden’s pandemic-related American Rescue Plan package, enacted less than two months after he took office last year, added at least a full percentage point to inflation and likely more.

Concerns about the inflationary impact of the government’s response to the crisis were downplayed at first.

The rise in prices initially seemed limited to durable goods — things like appliances and cars — and many, including the Fed’s top monetary policymakers, assumed the jump in inflation would fade as supply chains caught up with demand.

This took much longer than expected. Meanwhile, spending and inflation have migrated to services.

Russia’s February 24 invasion of Ukraine delivered another shock, pushing up commodity and energy prices and helping to force the Fed into what has become a post-crisis crisis environment, with inflation now provoking its own urgent response, just as the pandemic did two years earlier.

Biden administration officials say they remain confident the central bank can control prices without tipping the economy into recession.

“We believe there is a way to reduce inflation, but continue to see the positive momentum we’ve seen in the economy,” Deputy US Treasury Secretary Wally Adeyemo told Yahoo! News last week.

The Brookings articles and estimates from other economists have begun to cast doubt on whether the economy can weather this spurt of inflation without a huge rise in the unemployment rate, perhaps as high as 7.5%, an outcome that would “pay” for the rise in prices. at a cost of 6 million lost jobs.