The Federal Reserve belatedly began cutting interest rates two weeks ago, putting a quasi-official stamp on the “soft landing” with inflation nearly being brought down to the Fed’s long-run 2% target without any substantial weakening of the labor market. This milestone seems like a natural time to assess how well macroeconomic managers handled the past four years.

The answer—underappreciated by far too many—is very well!

In a nutshell, the Biden-Harris administration pushed a frontloaded and significant fiscal stimulus as the first major priority of their administration. The Federal Reserve accommodated this stimulus early on, and then began raising interest rates (more sharply than I would have) to try to rein in inflation. But they wisely never followed the advice of many to “keep raising rates until something breaks.”

In short, a return to full employment was prioritized in the Biden-Harris fiscal approach, and the value of low unemployment was clearly appreciated by the Fed. The results of this approach have been a clear success. There is no other plausible set of decisions about fiscal policy and interest rates over the past four years that would have led to lower inflation yet still would have seen real (inflation-adjusted) wages as high as today or as many people employed. That means there is no real argument against the assessment that macroeconomic policy has been a success.

What about inflation? Well, if real incomes today are higher than they would have been under any different policy decisions, why should inflation independently matter when grading policy outcomes? Say that two policy paths offered different pairs of inflation and nominal wage growth. Path one offers nominal wage growth of 6% and inflation of 5%, while path two offers nominal wage growth of 3% and inflation of 3%. Which path is better? Obviously, it’s path one which leads to higher inflation-adjusted wages. You can quibble that path one was unsustainable and that it should have been impossible to rein in such high rates of inflation without eventually inflicting damage to the economy, but the disinflation of the past two years clearly shows this is untrue (and it was known to be untrue throughout this episode).

Maybe some are worried that the patterns of wage growth and inflation look good on average over the past four years but are skewed toward the top and are leaving the most vulnerable workers behind? For one of the few times over the past 40 years, we can confidently say that’s not true—wage growth has been much faster for the lowest-wage workers over the pandemic recovery (see Figure A below). Further, this fast wage growth led to many measures of debt burdens falling for households—unexpected inflation has the silver lining of making debt cheaper to pay back.

Figure A

The lowest-wage workers had the strongest wage growth during the pandemic: Real wage growth across the wage distribution, 2019–2023

Wage group	Wage change
Low-wage<br>(10th percentile)	13.2%
Lower-middle-wage<br>(avg 20th–40th)	5.0%
Middle-wage<br>(avg 40th–60th)	3.0%
Upper-middle-wage<br>(avg 60th–80th)	2.0%
High-wage<br>(90th percentile)	4.4%

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Notes: Low-wage is represented by the 10th percentile and high-wage is represented by the 90th percentile. The lower-middle, middle, and upper-middle-wages are the averages of the 20th–40th percentiles, the 40th–60th percentiles, and the 60th–80th percentiles, respectively.

Source: EPI analysis of the Current Population Survey Outgoing Rotation Group microdata, EPI Current Population Survey Extracts, Version 1.0.48 (2024a), https://microdata.epi.org. 

Because I have not been living under a rock for the past four years, I realize this is not how many people see this time, and I realize that many seem extremely unhappy about the independent effects of inflation. This popular discontent about inflation is genuine information that economists should try to process and wrestle with. But the fact that inflation-adjusted wages are higher now than four years ago is also genuine information that the general public should wrestle with (and is far more relevant for actual living standards). Yet far too few economic observers seem to be pointing it out on a consistent basis.

When people complain about the inflation of the past four years, they likely think it should have been possible to hold other key economic outcomes constant—like nominal wage growth or unemployment—while having lower inflation. But all of these economic variables affect each other. You’re not allowed to order lower inflation alone off of some a la carte menu of policy outcomes. If that was possible of course policymakers would have done this.

Those claiming that this period of inflation represents some obvious policy mistake need to specify what they would have done differently and how this would have led to lower inflation but not to lower real wage growth or higher unemployment. This is awfully hard to do credibly. The general criticism is that the fiscal relief and recovery measures were too aggressive, and the Federal Reserve waited too long to start raising interest rates. In the jargon, the criticism is that aggregate demand—spending by households, businesses and governments—should have been reined in much more sharply.

Often excess aggregate demand can be a key source of inflation, but it was much more complicated than this during the pandemic recovery for a number of reasons.

First, much of the inflation came from easily identifiable shocks having nothing to do with aggregate demand management. The pandemic led to huge changes in the composition (not the level) of demand—people quit gyms and bought Pelotons, swapping out service consumption for goods consumption in a massive wave. The pandemic also led to cascading supply-chain snarls—ports closed and labor supply was affected by COVID-19 and knock-on effects like child care challenges spurred by remote schooling. The Russian invasion of Ukraine was a conflict between two of the largest producers of energy and food in the world, leading to large price spikes in both. The durability of increased work-from-home led to a reshuffling of housing as millions began valuing greater space more than shorter commute times.

Second, the pandemic’s effects on the supply side of the economy were intense but much more volatile and temporary than other supply shocks. Normally, the supply side of the economy is moving slowly on a predictable path, and policymakers—who only have influence over aggregate demand—have a clean target to aim for when they try to match this demand to supply. But the pandemic didn’t slow supply-side growth in a predictable way—instead it jumped up and down almost month-to-month depending on the virus’s current effects both home and abroad. In short, this time aggregate demand managers did not have a clean supply-side target to shoot for, making their job exponentially harder than usual.

If policymakers had tried to match the unusual short-run changes in the economy’s supply side with short-run changes to demand, lags in policymaking and its effects would have made growth more volatile and slower. If they had decided to avoid any demand overshoot over supply in any given month or quarter, this would have locked a temporary supply shock into a much longer-lasting depression of incomes and employment.

Policymakers instead essentially decided to chart a path that assumed the economy’s supply side was fundamentally going to return to what it had been pre-pandemic and stick to it through the rocky path of inflation (while also undertaking proactive measures to aid supply-side healing). This was wise, and if there was a flaw in that approach it was that this assumption turned out to be slightly pessimistic—measures like prime-age labor force participation are actually higher today than pre-pandemic, meaning today’s supply side is stronger than we thought it would be in 2024 before the pandemic struck.

The paragraphs above provide the intuition of why inflation was mostly inevitable and there was no painless fix for it. The most persuasive evidence as to why U.S. policymakers took the best policy path through the economic turbulence is the simple fact that the pandemic and the Russian invasion of Ukraine were global shocks that led to a sharp acceleration of inflation in every advanced country in the world (see Figure B below).

Figure B

Inflation shock of last four years was global: Acceleration of inflation, 2019–2024 relative to 2016–2019

Country	Inflation acceleration
Spain	1.0%
France	1.1%
Greece	1.2%
Korea	1.4%
Norway	1.4%
Canada	1.5%
Germany	1.5%
Euro area (20 countries)	1.6%
Italy	1.8%
Denmark	1.8%
Netherlands	2.0%
Israel	2.1%
United Kingdom	2.1%
Portugal	2.1%
United States	2.2%
Belgium	2.2%
Austria	2.3%
Finland	2.6%
Slovenia	2.7%
Ireland	2.8%
Latvia	3.0%
Sweden	3.2%
Iceland	3.6%
Lithuania	3.6%
Estonia	3.7%
Slovak Republic	4.5%
Czechia	4.8%
Poland	5.3%
Hungary	5.8%

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Source: Data on CPI less food and energy from the Organization of Economic Cooperation and Development (OECD). Average inflation rate from 2016m1 to 2019m12 subtracted from average rate between 2019m12 to 2024m6.  

It is theoretically possible that every country in the world made the same policy blunder as the United States, but this global acceleration of inflation happened in countries that undertook large fiscal relief and recovery efforts like the U.S. and also in countries that did not. It happened in countries that saw a rapid return to pre-pandemic unemployment rates like the U.S. and in countries that did not see such a rapid return. Country-specific inflation is almost totally unrelated to how aggressively they pushed unemployment back down to (or even below) pre-pandemic levels (see Figure C below). If anything, higher inflation is associated with less progress in reducing unemployment.

Figure C

No relation between change in unemployment and change in inflation during pandemic recovery: Change in unemployment between December 2019 and June 2024 and acceleration of inflation over recovery

	Change in unemployment	Inflation acceleration
Austria	-0.2%	2.3%
Belgium	-0.9%	2.2%
Canada	0.6%	1.5%
Czechia	-0.2%	4.8%
Denmark	-0.3%	1.8%
Estonia	0.8%	3.7%
Finland	-0.5%	2.6%
France	-1.6%	1.1%
Germany	-0.1%	1.5%
Greece	-7.2%	1.2%
Hungary	0.0%	5.8%
Iceland	1.1%	3.6%
Ireland	-1.4%	2.8%
Israel	-0.2%	2.1%
Italy	-2.4%	1.8%
Korea	-0.5%	1.4%
Latvia	-0.8%	3.0%
Lithuania	0.3%	3.6%
Netherlands	-1.5%	2.0%
Norway	-0.3%	1.4%
Poland	-1.5%	5.3%
Portugal	-2.0%	2.1%
Slovak Republic	-1.2%	4.5%
Slovenia	-1.8%	2.7%
Spain	-2.9%	1.0%
Sweden	1.3%	3.2%
United Kingdom	-0.1%	2.1%
United States	0.8%	2.2%
Euro area (20 countries)	-1.6%	1.6%

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The data underlying the figure.

Source: Data from both unemployment and inflation from the OECD Data-Explorer.  

The honest version of criticisms of the U.S. policy path argues straightforwardly that we simply should not have tried to push unemployment as low and as quickly as we did in 2021 and 2022.

But tolerating high unemployment would have been a very high-cost policy, with small and uncertain benefits in terms of inflation control. It is worth remembering that unemployment rates in 2019 were almost the same as the lowest levels of 2022, yet inflation was very low and not rising in 2019. What could have changed from 2020–2022 to generate much higher inflation? The question answers itself.

The most obvious cost of a strategy of tolerating more unemployment to keep inflation in check would have been the millions of workers who didn’t find jobs in 2021 and 2022. But this strategy also would have had another hugely underappreciated cost, even for workers that remain employed: Higher unemployment pulls down wage growth faster than it pulls down inflation. Taking a macroeconomic path aimed at keeping inflation low by tolerating higher rates of unemployment would therefore have left real wages lower today, and millions more workers would have been jobless along the way. This trade-off would not have been worth it.

Less-honest, hand-wavy criticisms of macroeconomic policymaking argue that the U.S. had a wide and easily attainable path to lower inflation with unemployment and real wage growth unchanged if only fiscal and monetary policy was less expansionary and kept aggregate demand in check. These invariably make extremely loose references to “vertical portions of the aggregate supply curve” (for a fuller argument against this kind of reasoning, see this). But there is no episode in the history of the post-World War II era when policymakers were able to identify and adjust aggregate demand smoothly to change just inflation but no other variable (i.e., they have never been able to find and then toggle aggregate demand along some “vertical portion of the aggregate supply curve”). Again, the a la carte option of “less inflation but the same amount of everything else” has never been a clear option in the U.S. macroeconomic history—those claiming it was easily available in the past four years have a very high burden of proof that they haven’t even tried to meet.

When analysts use existing macroeconomic models and plug in changes to the levers actually available to policymakers (like higher or lower interest rates), none of these models show a plausible path wherein inflation is kept much lower while unemployment and real wage growth matches what we’ve seen in the past four years.

Some have argued that real wage growth over the past four years has been worse than what you would get from simply extrapolating the pre-pandemic trend. Of course it’s been worse than that—we had a genuinely terrible series of economic shocks in that time. Comparing real wage growth over the first four years after a business cycle peak to the last 2-4 years of growth before the peak is either dishonest or trivial. Essentially, it’s an argument that we would all be richer and happier today had the pandemic and the Russian invasion of Ukraine never happened. Obviously. A better comparison would be to analyze growth over the first four years after previous business cycle peaks. On this measure, the macroeconomic path of the last four years looks astoundingly good (see Figure D below).

Figure D

Low-wage workers have experienced stronger-than-usual wage growth in the pandemic business cycle: Real wage changes at the 10th percentile and average of 40–60th, four years from prior peak, in current and last four business cycles, 1979–2023

Business cycle	10th percentile	Middle-wage<br>(avg 40th–60th)
1979–1983	-13.7%	-3.47%
1989–1993	5.7%	-1.01%
2001–2005	-1.7%	0.17%
2007–2011	0.1%	-0.89%
2019–2023	13.2%	2.97%

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Note: Because there was a double dip recession in the early 1980s, we tested the robustness of our results using different business cycles dates and find that our initial results still hold.

Source: EPI analysis of the Current Population Survey Outgoing Rotation Group microdata, EPI Current Population Survey Extracts, Version 1.0.48 (2024a), https://microdata.epi.org.

The economic shocks of 2020–2022 offered only bad options to policymakers looking to chart a course through the subsequent years. The economic path following the pandemic has been hard on working families in many ways, but it was the best bad option macroeconomy policymakers had over this time, by far. They deserve more credit for taking it.