On Friday’s edition of Bloomberg’s “Wall Street Week,” former Biden White House Council of Economic Advisers Chair Dr. Cecilia Rouse said that “we had unprecedented demand” due to “the remarkable support that the federal government here and abroad provided to consumers and businesses” and this was a factor in a “mismatch of supply and demand” that created inflation.
In response to a question on the relationship between the labor market and inflation, Rouse said, “So, the reality is that, in economics, there’s not a fabulous theory and one theory of inflation. And I think that is part of the challenge. Another part of the challenge is, what was the source? We know that we had unprecedented supply challenges due to the pandemic, both in terms of getting goods to people [and] manufacturing goods, because people are a part of that process, and with the pandemic, they couldn’t show up to work. And then, we also know we had unprecedented demand, because of the remarkable support that the federal government here and abroad provided to consumers and businesses to get them through the pandemic. So, we know we had this mismatch of supply and demand. The question is, which was going to win in terms of sort of regularizing faster? So, I think this goes back to, we hadn’t seen inflation for a long time. Economics doesn’t have one solid, well-established theory of inflation, and the fact that we had an unprecedented shock to our domestic economy and the global economy. What we’re seeing now is, monetary authorities stepped in, the federal government stepped in, they pulled back appropriately, and the economy is getting back to normal.”
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