Episode summary
Why Adam Posen Thinks Inflation Will Surge Back to 4% | Odd Lots
Odd Lots
· · Hosts: Joe Weisenthal, Tracy Alloway · Guests: Adam Posen
Summary
Adam Posen argues that U.S. inflation is headed back up, not down, and could reach 4% by the end of 2026 on headline CPI. He says the labor market is not as weak as it appears because headline softness is being distorted by mismatch, not a broad demand shock, and he points to high prime-age participation, low layoffs, and sector-specific hits to African-American and younger workers.
He sees a cluster of inflationary forces building at once: the lagged effects of tariffs and anti-migration policy, a likely fiscal expansion ahead of the midterms, a weaker dollar, and a Federal Reserve whose credibility and transmission mechanisms are both less effective than before. On his telling, companies and migrant workers need time to make irreversible decisions, so the price effects of policy changes are only now starting to show up.
Posen also argues that the next inflation shock would be more persistent because central bank credibility has already been eroded by the failure to get inflation fully back to 2%. He says private credit and other changes mean Fed rate hikes do less than they used to, while AI spending is boosting activity without yet delivering the disinflationary gains people expect. He closes by warning that Europe is being forced to rethink its relationship with the U.S. as security and macro policy become more intertwined.
Key takeaways
- Adam Posen says headline CPI could return to 4% by the end of 2026 because tariffs, migration restrictions, fiscal easing, and weaker Fed credibility are all inflationary at once.
- Posen argues the labor market is not signaling a broad demand collapse; he sees mismatch, not recession, behind softer wage growth and uneven unemployment.
- He says tariff and immigration effects should be judged with a lag, because firms and workers need time to make irreversible decisions about pricing, sourcing, and mobility.
- Posen warns that Fed tightening is less powerful than in the past because private credit, the yield curve, and expectations transmission are weaker.
- He says Europe now has to plan for a world where the U.S. is less reliable as both a security backstop and an economic guarantor.
Notable quotes
“I think it's realistic to think about 4% by the end of the year on headline CPI”
“the direction of travel is up, not down and pretty clearly that way”
“there are so many points if you kind of step back right and you say all right if I'm making a forecast for inflation over the next year or two”
“So, boom, boom, boom, boom, boom, boom”
“the idea that there should be an ongoing accord as opposed to say an emergency response during the financial crisis or during COVID is what's scary”
How the episode opens
Bloomberg Audio Studios podcasts, radio news. — Hello and welcome to another episode of the OddLotss podcast. I'm Joe Weisenthal — And I'm Tracy Aloway. — Tracy, you know, future economy is always uncertain. path of the path of inflation, path of employment, always big debates. I think what's really interesting right now compared to a few years ago maybe is you know at various times it's like inflation is going to come down but there's a fight over how fast right and now you have a situation which
There are people who argue both sides some people's like oh no we're on a you know we're heading down the sort of yield data camp etc and others are like look we're reacelerating it's going to get hot again and we're recording this February 11th we just hit a fairly strong jobs print etc and so some people are making the reaceleration argument We are so back so back. Well, that jobs report, I mean, it was a blowout number. So, 130,000 jobs added in January versus expectations for 65,000.
And even if you drill down into it, like it looks pretty good, right? But you're absolutely right. So, we used to argue about how far we would travel in one direction.
You know, inflation,
Is it going to be 4%, is it going to be 5%, whatever. And now we're sort of arguing about which direction we're actually gonna go. — Totally. And I think like if you just look like okay one jobs report can't you know take it with a grain of salt there is there does seem to be a lot of evidence of some softening in the labor market by a lot of different measures etc. Housing market continues to be fairly soft.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- inflation forecast
- fed credibility
- tariffs and immigration
- fiscal easing
- europe us relations
Companies and tickers mentioned
- LAZ
- Lazard
- Peterson Institute for International Economics
Watch the episode
Watch “Why Adam Posen Thinks Inflation Will Surge Back to 4% | Odd Lots” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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