Last Friday, Kevin Hassett, a researcher at Stanford University and former Federal Reserve economist, was interviewed and shared his views on inflation.

Q: In the early stages of this Federal Reserve cycle, you mentioned that the Fed was behind the curve. How would you rate their performance so far, especially that 50 basis point rate cut?

Hassett: We must recognize that the Fed, in a manner that is somewhat economically illiterate, has separated fiscal policy from inflation forecasts and kept telling us that the surge in inflation is temporary. The Fed was indeed behind the curve in helping to offset the fiscal policy shock, which caused or contributed to inflation. They really missed something that should not have been missed. Every introductory macro textbook says that if there is a fiscal policy shock, it could trigger inflation.

You might say that perhaps because of the independence of the central bank, officials were thinking that if fiscal policy wants to do something, and if we offset it with stricter monetary policy, we are playing politics. I don't know what they were thinking when they decided to wait, but they let inflation get out of control.

I attended the Jackson Hole meeting a year and a half later, and everyone understood that there was a lot of catching up to do. I think if you look back at their rate hikes, by some standards, they were the most aggressive ever. Like all other economic policies, Fed policies can make mistakes. They admitted they made a mistake and are actively dealing with it. Therefore, I would give them a low grade because they started too late, but in terms of learning from mistakes and actively dealing with them, I would give them a higher score.

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Based on the data, the recent move to start lowering interest rates makes sense. We have just crossed or are close to the edge of the Sum Rule. But suddenly, the data has been exceeding everyone's expectations. So in hindsight, this may have been a mistake, but I would not call it a mistake because I think based on the data at the time, it seemed that a sharp slowdown was happening. The mood-setting data for this meeting was the poor employment data we got over the summer. From a historical perspective, this would be seen as a mistake, but I think when you grade economic policymakers, you need to understand the circumstances in which they made their decisions. For me, I would not give them a low grade for their September move, although in retrospect, it looks like they might wish they hadn't done it.

Q: Until April of this year, you also said that we might be heading towards a situation similar to stagflation. Do you still think this is a risk?

Hassett: The economic data from the past month or so has really surprised me. Looking at the GDPNow data, considering how much the unemployment rate has risen, this is an almost unprecedented data sequence.

I have two thoughts. The first is that the employment data feels noisier than before. This may be related to how people respond to surveys. It may also be related to the surge in the number of illegal immigrants in the workforce, who may not want to be surveyed. I don't know the specific reason.

On the other hand, my intuition about GDP growth is related to the great work done by my Stanford colleague Erik Brynjolfsson on the impact of artificial intelligence on productivity. In the late 1990s, when the internet suddenly became an important thing, we experienced a period when equity returns were high, and income and growth exceeded expectations. Productivity indicators were hard to keep up with what was happening at the time. It may be that artificial intelligence is starting to affect the data to an extent that no one thought possible.