Paul Krugman Warns 'Temporary Burst Of Inflation' May Haunt the Economy For Years

The U.S. economy’s “temporary burst of inflation” has led to long-term psychological and political repercussions, according to economist Paul Krugman, Business Insider reported.

Krugman, in a recent op-ed for The New York Times, stated that despite inflation coming down to around 3.2% as of July, the perceived damage extends beyond jobs and prices.

A new poll by Quinnipiac University found a significant discrepancy between public perception and economic performance. 71% of the surveyed Americans described the economy as poor or not good, while Goldman Sachs projected only a 15% chance of a recession over the next year.

See Also: US Stocks Ease As Oil Price Spikes To 10-Month High, Dollar Gains: What’s Driving Markets Tuesday?

Krugman referred to this as the “vibecession,” caused partly by the shock of the sudden price increase after a period of stability. This, he believes, may be obscuring people’s view of positive economic data.

The negative perception of the economy could impact the upcoming election, potentially hurting Joe Biden and the Democrats.

Despite criticisms of Biden’s economic policies, particularly over not raising interest rates in 2021 when inflation first appeared, the strong labor market and steady unemployment levels of around 3.8% show the economy’s “remarkable progress,” according to Krugman.

However, the debate continues over whether the Federal Reserve should have acted sooner on interest rates and if it would have made a significant difference. Some critics are still blaming Biden for fiscal stimulus spending, though Krugman argues that a prompt rate hike would likely not have impacted the economy or improved political attitudes.

Read Next: Contemporary art pieces have shown miniscule correlation to other assets during crises. However, not all are created equal. Click here to invest in pieces experts agreed could outperform the market.

Photo via WTO on Flickr