New EMPCT opinion piece with Olivier Coibion on the #inflation outlook.
As shown in the figure below, the current inflation trajectory is strikingly reminiscent of the late 1970s — and the implications are concerning.
#EconSky #oil #oilprice #gasoline
More here: tinyurl.com/ycym769x
This puts the Fed at risk of a belated response should prices and expectations rise stronger and more persistently than currently forecasted.
Read the full blog post here: sites.utexas.edu/macro/2026/0...
Whereas then-chairman Paul Volcker voiced public commitment to disinflation, the 2026 reaction so far looks more like the 2021 reaction, when inflationary pressures were described as temporary and one-off, with only very limited official forecast revisions.
The position of the Fed today is different than in the late 1970s.
Energy prices are one of the most powerful drivers of inflation and inflation expectations, with the comovement being consistent across time. Hence, a new oil price shock may send inflation higher in 2026.
Inflation expectations in the US remain unanchored (around 6%), much higher than official forecasts. Also the feature was visible in the 1970s, with expectations remaining high even after external inflationary pressures subsided.
Key Insights: Inflation during the 2020-2025 period almost mirrored the 1972-1978 window. In both periods an oil price shock followed, linked to struggles in Iran - the Iranian Revolution of 1978 and the ongoing war in Iran.
New blog post by our co-director Olivier Coibion and Yuriy Gorodnichenko: @ygorodnichenko.bsky.social
Is It 1978 All Over Again? Why Americans Are Right to Expect Much Higher Inflation
Short summary and link to full post below.
Very excited that Oli's and Yuriy's book is out. You can get your copy here: tinyurl.com/385ak89u
A professional announcement: Oli Coibion,
@ygorodnichenko.bsky.social and I are starting a new conference on Expectations and Behavior, with a special focus on giving junior researchers the opportunity to interact with more senior researchers in the field.
Call for papers:
sites.lsa.umich.edu/rudib/wp-con...
Submit your work
#EconSky
Inflation ⬆️ & Employment ⬇️ → Stagflation
A difficult situation for the Fed. Cut interest rates now → risk of rising inflation ⬆️
More here: "Inflation, Expectations and Monetary Policy: What Have We Learned and to What End?" with Oli Coibion @empctmacrotx.bsky.social, shorturl.at/2fmOD
#EconSky
Read the full blog post here: sites.utexas.edu/macro/2025/0...
The authors emphasize that although America is further away from the battlegrounds, history shows that American consumers do react to wars overseas, calling for stabilization by policymakers and central banks, especially by anchoring expectations.
Importantly, these views also concern people's personal situation and not just their general economic outlook.
Though apparently far away, wars still transcend into the expectations of households and consumers, progressively worsening their outlook as wars drag on as shows European survey data.
How Wars in Foreign Countries Influence Inflation and Expectations
That is what Olivier Coibion and Yuriy Gorodnichenko explore in our most recent blog post "When Foreign Wars Abroad Hit Wallets at Home".
New working paper:
The Dynamics of Technology Transfer: Multinational Investment in China and Rising Global Competition
by @jaedochoi.bsky.social, George Cui, Younghun Shim & Yongseok Shin.
Link to the paper as well as other working papers of our center: sites.utexas.edu/macro/resear...
New (updated) working paper:
The Inflation Attention Threshold and Inflation Surges by
@pfaeutiecon.bsky.social
.
Link to the paper as well as other working papers of our center:
sites.utexas.edu/macro/resear...
More details in the blog post: sites.utexas.edu/macro/2025/0...
and even more details in the paper: academic.oup.com/restud/advan...
While US macroeconomic announcements have large effects on foreign stock markets, the reverse is not true. Foreign economic news releases have little to no effects on US markets.
US monetary policy has a stabilizing role after US macroeconomic news releases.
When bad news about the US economy becomes available, markets expect Fed to lower interest rates, which partially offsets the decline in stock markets and thus stabilizes asset markets and economy.
These findings suggest that investors are more confident in holding riskier assets when the US economy is doing well.
Flip side: bad news about the US economy can lead to a global stock market panic
Why is it that global stock prices respond so much to surprises about US macroeconomic data releases?
➡️ global stock prices rise after US macroeconomic news releases
➡️investors’ perceived risk and uncertainty falls
➡️ prices of relatively safe assets also fall
How does news about the US economy affect the rest of the world?
➡️ after US macroeconomic news releases, global stock prices respond immediately and in a synchronized way.
➡️ effects are large: Foreign countries’ stock prices respond with magnitudes similar to US stock market.
How News about the US Economy Drives Global Financial Conditions
New blog post by Chris Boehm and @kronerniklas.bsky.social (UT graduate @utaustinecon.bsky.social 🤟) based on paper recently published in @reveconstudies.bsky.social.
Short summary below ⬇️
Much more details, including a discussion of the policy implications can be found in the blog post:
sites.utexas.edu/macro/2025/0...
Or in the full working paper: utexas.app.box.com/s/ht0ddytxfx...
Thank you for reading!
@utaustinecon.bsky.social
This is consistent with models where wage contracts are short-lived and expectations beyond the contract horizon are irrelevant (as @ivanwerning.bsky.social 's work highlights)
Only short-term expectations (and inflation perceptions) are meaningfully correlated w/ expected wage growth. Long-run inflation expectations have essentially no predictive power.
As inflation began rising in 2022, firms initially underreacted: short-term expectations rose more slowly than actual inflation. This gave way to persistent overshooting—firms expected more inflation than actually materialized, especially in the disinflation phase in 2023–2024.