Why Adam Posen Thinks Inflation Will Surge Back to 4%

The podcast explores the increasing likelihood of rising inflation, potentially reaching 4% by year's end, driven by factors beyond just the labor market. Adam Posen, president of the Peterson Institute, argues that tariffs and anti-migration policies will exert more visible inflationary pressure. These policies, combined with potential fiscal stimulus like checks to citizens and Obamacare subsidies, alongside a weaker dollar, contribute to this outlook. The conversation also covers the impact of AI investment, which is largely self-financed, and its uncertain effect on productivity growth, suggesting real income gains will precede disinflationary effects. Additionally, the discussion addresses concerns about the Fed's credibility and the weakening monetary transmission mechanism due to the growth of private credit. Finally, the hosts and Posen examine the broader geopolitical implications, particularly the shifting relationship between Europe and the U.S., and how these shifts could lead to increased spending and further inflationary pressures.