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Is inflation transitory and how long will interest rates stay low?

Summary:
Right now, interest rates (mortgages) are 3% and inflation is 5%.  This cannot last because those who lend are getting paid back with dollars that cannot buy as much as the dollars they lent.  If inflation stays at 5%, interest rates have to rise to compensate lenders, e.g., to 8%.MarginalRevolution.com has an answer: “I think the inflation will last two to three years, and it will be bad,” Cowen said. But really grim hyper-inflation à la Carter-era, he thinks is unlikely. It could only happen if the Federal Reserve decides it’s too risky to trim the sails of cheap money. “I’d put it at 20% chance that the Fed will think, ‘Trump might run again, and we don’t want Biden to lose . . . history’s in our hands, so we’ll wait to tighten.’ And then it just goes on, and then it’s very bad.”

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Right now, interest rates (mortgages) are 3% and inflation is 5%.  This cannot last because those who lend are getting paid back with dollars that cannot buy as much as the dollars they lent.  If inflation stays at 5%, interest rates have to rise to compensate lenders, e.g., to 8%.

MarginalRevolution.com has an answer:

“I think the inflation will last two to three years, and it will be bad,” Cowen said. But really grim hyper-inflation à la Carter-era, he thinks is unlikely. It could only happen if the Federal Reserve decides it’s too risky to trim the sails of cheap money. “I’d put it at 20% chance that the Fed will think, ‘Trump might run again, and we don’t want Biden to lose.history’s in our hands, so we’ll wait to tighten.’ And then it just goes on, and then it’s very bad.”
But a recession is also bad. It’s hard to sort it all out. “As the saying goes, ‘If you’re not confused, you don’t know what’s going on,’” Cowen told me.

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