When the COVID-19 pandemic started in late 2019, governments around the world quickly launched a raft of stimulus programs to deal with the ensuing economic crises. Millions of people had been thrown out of work due to business shutdowns, and some governments sent checks to individuals and families to keep them afloat. Companies received grants to help them stay alive. Authorities elsewhere provided other forms of assistance to their citizens.

Being the wealthiest nation on the planet, the U.S. naturally spent the most on pandemic relief programs. A report by the U.S. Government Accountability Office (GAO) shows that as of January 31, 2023, the federal government had provided about $4.6 trillion in pandemic-related support to American families and businesses. Over half of that spending occurred in 2022 when former President Trump was in office. By the end of that year, some politicians and economists were already complaining that the outlays had become excessive.

Opposition to further pandemic-relief spending grew much louder in January 2021 when the newly inaugurated President Joe Biden unveiled his $1.9 trillion American Rescue Plan. The most prominent of the dissenting voices were former U.S. Treasury Secretary Larry Summers and Jason Furman, who was chairman of the Council of Economic Advisers under President Obama. Messrs. Summers and Furman, both economics professors at Harvard, warned that such large amounts of money in circulation, combined with goods shortages resulting from pandemic-induced supply-chain bottlenecks, would lead to runaway inflation. They feared that the Federal Reserve would later have to raise interest rates aggressively to tame that inflation, risking a severe recession that would throw millions of people out of work. Hence the label “Team Recession.”

On the opposite side of that argument was “Team Transitory.” Those in this camp have always maintained that the supply-chain problems were transitory, and that it was better to inject large doses of stimulus quickly to revive the stalled economy. Furthermore, they said that if the feared runaway inflation were to materialize, the Fed had the tools to combat it. The star players on this team include Fed Chairman Jerome Powell, Treasury Secretary Janet Yellen, and Paul Krugman, Nobel laureate and professor of economics at the City University of New York (CUNY).

U.S. inflation averaged 1.8 percent in 2019, before falling to a low of  0.1 percent in May 2020 at the height of the pandemic, when the entire national economy was essentially shut down. But as predicted by Team Recession, inflation soon started rising sharply. It reached as high as 9.1 percent in June 2022. In response, the Fed raised interest rates aggressively from near zero percent in May 2020 to around 5.5 percent by the fall of 2023.

Two interesting things happened during that period. First, the economic downturn that Team Recession, many economists, and financial market analysts have anticipated for the past two years has not materialized—thus far. Instead, the economy has continued to grow, and unemployment has remained at historic lows. Second, Team Transitory has been surprised by the economy’s apparent insensitivity to interest rate hikes. For quite a while, it seemed as if the Fed’s medicine wasn’t working. Inflation remained stubbornly high until the end of the first quarter of 2023 when it finally fell below 5 percent. The rate is over 3 percent now, still well above the Fed’s 2 percent target.

Lately, both teams have made some admissions about their judgment errors. Each side has acknowledged that the models they use to predict the behavior of the economy are perhaps a little obsolete and need updating. Even then, Team Recession insists that we are not out of the woods yet, while Team Transitory feels somewhat vindicated because inflation has finally come down substantially with the resolution of some of the supply-chain issues.

One factor that has not been sufficiently highlighted by either side in the inflation debate is the extent to which the steep reduction in energy prices has helped bring down headline inflation. The 180 million barrels of oil that the Biden administration released into the market from the Strategic Petroleum Reserve (SPR) helped, but the bigger contribution came from America’s energy producers, whose record output of both oil and natural gas tamed overall energy prices. That was never a guaranteed outcome. U.S. inflation would almost certainly have topped 10 percent in 2022 without this assist from the nation’s energy sector.

Stimulus spending in the Eurozone was nowhere near that of the U.S., but inflation there reached a high of 11.5 percent in October 2022. High energy costs played a big part. For a period in 2022 into early 2023, natural gas prices in Europe were almost ten times those in the U.S., a result of the disruption in Russian supply to the continent due to the war in Ukraine. Although the price disparity wasn’t that wide for oil, Europeans still paid quite a bit more for gasoline and other oil products than Americans did.

The Fed has indicated that it is probably done raising rates, and that its next move is likely to be a cut. The financial markets have already taken that to the bank. Some analysts expect several rate cuts this year, but Chairman Powell has tried to tamp down that enthusiasm. He has said repeatedly that the Fed’s next action will be data-dependent. Essentially, the economy seems like an engine under a car hood. Once every month, the Fed lifts the hood and it is only then that they can tell what really happened under it during the previous thirty days.

This seemingly opaque nature of the economy often reminds me of something one of my business school finance professors said in class one day. We were discussing the intricacies of the financial markets in his investments class. At one point, he said that when it comes to those markets, no one really knows anything. It was one of those made-in-jest comments that one would ordinarily forget within a minute or two, but it stuck with me and has become a guiding principle.

The reason the comment had that impact on me was because the professor was Kenneth French. He, together with his co-author, Eugene Fama, the Nobel laureate and professor of economics at the University of Chicago, developed the famous Fama-French Three-Factor model that financial market professionals have used for years to estimate investment returns. For him to express that sentiment in class was quite a surprise.

Observing the back-and-forth between Team Transitory and Team Recession over the last two years, I have realized how valid Professor French’s comment was. The experience has given me a greater awareness of the importance of intellectual humility. Clearly, even the geniuses don’t always know what is going on.