Some economists blame the surge for the economy's overheating in the first quarter. But the Fed learned something from its experience in 1987, when liquidity that it added after the stock market crash led to inflation. Still, inflation hawks point to a range of indicators that inflation is getting out of hand. Indeed, with the tightest job market in 30 years, first-quarter labor costs for U.S. businesses climbed at their fastest pace in more than 10 years. And despite Cohen's calming words, inflationary psychology may be creeping back.
Technology is far more of a force for price stability than it ever has been.
As long as workers earn their higher pay by producing more, inflation pressure is eased. Moreover, for all the short-term inflationary pressures, longer term the Internet is a hugely powerful disinflationary force. Inflation bugs worry that once all businesses have embraced the Net, the gains from it will be over. But optimists say that won't happen for a long time. Take Commerce One Inc. of Pleasanton, Calif., which makes software that goes into online-procurement systems.