How Goldilocks came to the US economy

EARLY this year, many economists held a very grim view about the prospects for reducing inflation without a major economic slowdown and a big rise in unemployment. One prominent economist declared that underlying inflation was at least 4.5 per cent and that “all the hoped-for saviours” — that is, forces that might bring inflation down painlessly — “have come and gone”. Inflation, another declared, would be “sticky around 4 per cent to 5 per cent”.

Given those expectations, what actually happened amounts to a minor, or maybe not-so-minor, miracle. Growth, both in gross domestic product and in jobs, has remained solid. But standard measures of underlying inflation are now under 3 per cent and falling. Fancier statistical models maintained by the New York Fed tell the same story, and say that underlying inflation has fallen by half since its peak last year.

Now, there may be some bumps in the months ahead, largely involving technical issues.