True, much of global trade is invoiced in dollars, but the Chinese renminbi is muscling into that turf, and producers ultimately care about how their revenues translate into domestic purchasing power. The upside risk to US inflation stems from that translation – the value of the dollar.
The legislative one-two punch of tax reform and spending increases puts the US federal debt on an upward path. If fiscal laxity tarnishes the safe-haven status of Treasury securities, and the monetary authority is perceived to be slow in removing policy accommodation, Fed Chair Jerome Powell and his colleagues may get more of the inflation they are hoping for.
Carmen Reinhart is professor of the international financial system at Harvard University's Kennedy School of Government.
Vincent Reinhart is chief economist and investment strategist at BNY Mellon Asset Management North America Corporation.