MMT’s Kelton Says Temporary Inflation Sign of ‘Growing Pains’

(Bloomberg) -- High inflation rates in the U.S. won’t last for long even though the economy is undergoing an unprecedented experiment with fiscal policy, according to a top proponent of Modern Monetary Theory.

The surge in consumer prices, which are rising at the fastest pace in more than a decade, is “by and large” a sign of “growing pains of an economy that’s emerging from a pandemic and reopening”, according to Stephanie Kelton, professor of economics and public policy at Stony Brook University and former adviser to Senator Bernie Sanders.

“I situate myself pretty squarely in the transitory camp,” she said in an interview with Romaine Bostick on Bloomberg Television Friday. She added that elements that would cause entrenched inflationary pressure are missing.

Kelton joins Federal Reserve Chair Jerome Powell, President Joe Biden and Treasury Secretary Janet Yellen in calling price increases over the prior three months only temporary.

MMT is an economic theory that holds that governments can spend more than they think without spurring runaway inflation. It’s gained influence as interest rates remained low globally in the past decade and as governments ramped up spending during the 2008 financial crisis and Covid-19 recessions.

“We are in an experimental economy,” Kelton said. “To the extent that Congress is waking up to a new way of thinking about the way it approaches the budgeting process and the use of fiscal policy to support the economy, it’s going to end up being a pretty good thing for most everyone in this country.”

©2021 Bloomberg L.P.