GAZETTE:  What is consumer “price expectation”?

ROGOFF: The government publishes indices, most prominently the Consumer Price Index, which attempts to say, if you were trying to live the way you were last year, how much would it cost you this year? If there weren’t any inflation, that wouldn’t be going up. But it does tend to go up a bit every year because we actually do have some inflation every year. But that’s very different.

GAZETTE:  Home prices across the country spiked quickly during the pandemic and remain high, especially in areas that had been seen as affordable and low-competition markets just a couple of years ago. That’s now driving up rents in many of those same places. Are there other second-order effects that a long period of inflation might have?

ROGOFF: Commercial real estate is possibly on the verge of the biggest collapse we’ve seen since the Second World War. The IMF [International Monetary Fund] estimates that commercial real estate occupancy will settle at a rate that’s at least 15 percent lower than it is now in the major cities of the world, and they estimate that the price effect of that’s going to be 50 percent. Certainly a lot of adjustments may take place, but it’s different than inflation. It’s a reorientation.

The reason we could get inflation at some deep level is that the government, for lots of reasons, may want to grease the wheels of this process, and sometimes it moves faster in a more inflationary environment. Adjustments can take place quicker when prices are moving, and we’re getting to market-clearing prices quickly. I certainly worry about inflation, but I think the average person, and I would even say the bond market, is not worried about it.

GAZETTE:  How influential is consumer psychology around inflation to the professionals?

ROGOFF: Very, because presumably consumers are seeing the prices right away. Professionals are convinced there’s not going to be meaningful inflation. Consumers have a higher estimate of inflation than the professionals do at the moment. There was a brief period where it was lower, but it’s gone back to being higher, and who knows?

GAZETTE:  What’s the effect on the labor market and is it helping shape what the Fed plans to do?

ROGOFF: The Fed has made this bold announcement that they would keep their powder dry until [the U.S.] reached a very low level of unemployment. They don’t know what they’re going to do. We don’t know what they’re going to do. A lot of this chatter around inflation is a fear that the Fed will raise interest rates and that will blow things up. The Fed will need to raise interest rates at some point, but I think they’re going to be very, very cautious about it. There’s a real concern that in two years, things will look disturbingly like they did in 2015 — that the economy will be growing slowly; inflation will be low; inequality will be growing — and we’ll just be back in the soup. That’s as real a fear as that we have high inflation. And if you’re the Fed, it’s very hard to know what you want to do. And so, they’re trying to talk inflation down, while at the same time, stimulate as much as they can.

GAZETTE:  If the monthly CPI inflation rate of 4 or 5 percent hasn’t ticked down by the end of 2021, does that change your view of where we are?

ROGOFF: It would change my view of where we are. It would be a little worse. If it seems like we’re at 5 percent and it’s not going anywhere soon, the Fed will have to move a little. They have to. That’s too much. On the other hand, and much more likely, if it’s 3 percent or 3.5 percent, then I think they’ll just keep waiting it out.

Interview has been edited for clarity and length.