Inflation has instead run below the Fed’s 2 percent target for nearly the entirety of the last decade. That may sound like a boon to a lot of people, especially those who remember the double-digit inflation of the late 1970s. But low inflation can present problems of its own.

The pandemic depressed incomes. The economy is still about $900 billion smaller than it had been projected to be by this point. That’s in “nominal” dollars, without adjusting for inflation.

The size of the economy in dollars matters because many contracts are written in those terms. When incomes fall below expectations, the ripple effects, for households trying to pay mortgages and firms trying to maintain payrolls, can be severe. Bringing national income back to where it would have been without the pandemic avoids these needless disruptions and fosters the economic stability needed to coordinate plans for the future.

But catch-up growth in the dollar size of the economy would almost certainly entail going through a period of inflation above 2 percent. The key questions are whether the Fed will seek such growth, or at least tolerate the inflation that comes with it, and whether markets will have confidence that it will.

If the Fed’s likely reaction to 3 percent inflation would be to slam on the brakes, then we won’t get the growth we need — no matter how much Congress spends.

The more credibly the Fed signals that it will accept a period of elevated inflation, on the other hand, the more of that catch-up growth we will have, even without fiscal stimulus. The Fed has, thankfully, shown awareness of this point in recent months. Its recent statements about inflation and interest rates have raised expectations for catch-up growth. They just haven’t done it enough.

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One reason they haven’t, of course, is that so many influential voices are carrying on as though we were about to relive the 1970s. The danger to which the inflation hawks are pointing is mostly illusory. The one the hawks themselves pose is all too real.

David Beckworth is a former economist at the Treasury Department and a senior research fellow at the Mercatus Center. Ramesh Ponnuru is a fellow at the American Enterprise Institute and a columnist for Bloomberg Opinion.

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