Specifically, Kelton and Mosler argue that because the Congressional Budget Office (CBO) isn’t forecasting a sharp inflation problem for the US economy, its rising debt must not be a problem after all. As I’ll explain, this argument is incredibly slippery, though perhaps Kelton and Mosler mean it in earnest. …

Before proceeding to my critique, let’s first be clear on what Kelton/Mosler are arguing in the above. After reproducing the CBO’s assessment of the Big Beautiful Bill (BBB), in which CBO argued that (consumer price) inflation would “increase by a small amount through 2030,” Kelton claims that in the absence of a long-term inflation problem, there can likewise be no debt problem for the government. …

There are two major problems with Kelton’s “what me worry?” attitude. First, look again at the tweets above. The CBO actually wasn’t saying there was no long term inflation problem; it was merely saying inflation wouldn’t rise much over the next five years.

However, even though the specific evidence she retweeted didn’t support Kelton’s claim, in fairness we can admit that in general, even the CBO’s Long Term Budget Outlook documents don’t assume unreasonable inflation projections. But this isn’t reassuring, because the CBO wouldn’t be allowed to build in a debt/inflation crisis cascade. …

In closing, let me alert the reader to the fact that Kelton herself did not appreciate the surge in CPI inflation that was coming in the wake of the Covid lockdowns and aggressive central bank action. In July 2021 she appeared on Bloomberg and dismissed inflation concerns saying it was “transitory” and due to supply-chain bottlenecks. Yet at that point, year-over-year CPI inflation was “only” 5.3 percent. After Kelton’s pooh-poohed inflation fears, it continued to rise, peaking at 9 percent in June 2022 (almost a year later).

For its part, the CBO long-term outlook as of February 2021 didn’t forecast the surge in CPI inflation either. …

As this table shows, back in February 2021 CBO forecasted that CPI inflation for the year 2022 would be 2.2 percent, and for 2023 would be 2.3 percent. In reality, the actual levels of inflation (calculated as the annual change in the 4th quarter average, as the CBO table indicates) were 7.1 percent and 3.2 percent.

In short, if the CBO is off by five percentage points for what next year’s inflation rate will be, should we really be reassured that they’re forecasting the Fed to hit its targets smoothly in 30 years?