How serious is inflation and how does it affect US growth?

As the Kovid-19 epidemic continues, the United States is once again forced to fight its old enemy: inflation. The debate goes back to the 1970s, when the Federal Reserve gradually tightened the money supply.

The current debate on inflation revolves around the same question: is it temporary or to stay here for the foreseeable future? The answer divides commentators, analysts and policymakers into separate camps and what it means for the economy as a whole.

In the current measure of inflation, it is undeniable that prices have risen steadily over the past year.

The latest from the Department of Labor Consumer Price Index (CPI) October saw a 30-year high of 6.2 percent, with energy prices rising. Prices for Bulk goods Meanwhile, they saw their highest growth in a decade after registering 0.6% growth last month. Inflation has affected the decline in GDP Third quarter Consumption narrowly.

Federal Reserve under the chairmanship Jerome Powell And Biden administration Ongoing inflation is based on the assumption that it is temporary, a phrase that has divided economists. At a press conference on November 3, Powell Accepted This means different definitions for different people, but the Fed has made it clear that it does not look at it from a time perspective.

“For some, it carries a sense of ‘short-term,’ and there’s a real-time component, measured in months,” Powell told a Fed press conference. The central bank interpreted this as a question of whether inflation would lead to “permanent or persistent high inflation”.


Federal Reserve Chairman Jerome Powell Said He Thought It Was Time To Reduce The Bank'S Massive Bond-Buying Program.
Federal Reserve Chairman Jerome Powell said he thought it was time to reduce the bank’s massive bond-buying program.
Photo: Pool / Sarah Silbiger

Former Treasury Secretary Lawrence Summers made an exception to the Fed’s position in a column. The Washington Post. He pointed to A. Speech In August from Powell in Jackson Hole, Wyoming, where he placed five pillars supporting his view on inflation.

Citing recent cross-sectoral inflation and unemployment data, Summers slammed Powell’s arguments for support for a temporary inflation situation. The former Treasury chief warned that sticking to this approach could blind the Fed to a potential bubble under its nose.

“Mem stocks, retail option purchases, crypto market developments, credit spreads and some start-up valuations suggest significant growth in some markets,” wrote Summers, who is now a professor at Harvard Kennedy School.

The Fed’s somewhat clear view on inflation has not been shared with consumers, who feel it is at its worst level since the Great Recession. Decades ago. This could present its own problems as firms raise wages to trap workers who feel free to compromise for better compensation or benefits in the midst of economic recovery.

This could be attributed by economists to a wage-price spiral where prices correspond to higher wages. Professor Narayan KocherlakotaThe former chairman of the Federal Reserve Bank of Minneapolis warned in July that this could be a problem similar to the one in the 1960s and 1970s.

“If businesses and workers consider the inflation rate to be more than two per cent when determining wages for the coming financial year, it will become self-sufficient,” wrote Kocherlakota, now a professor at the University of Rochester. “This could be a big problem if we see it built into pay-setting practices and price-setting practices.”

This is not to say that any of the Fed’s views are not shared by other economists. Jason Farman, former chairman of the White House Council of Economic Advisers, led by President Barack Obama, said inflation was expected to be “uncomfortably high” but that growth would slow over time.

In an op-ed The Wall Street Journal, Furman argued that the Fed had the right framework to address emerging inflation while leaving room to maneuver. To make good use of it, he urges the Fed to abandon any “wishful thinking that inflation is plummeting dramatically” and to speed up the cautious pace of the recent taper of the asset purchase program launched during the epidemic.

“The central bank needs to have a more realistic understanding of inflation and strengthen monetary policy by reducing its asset purchases faster,” said Furman, who argues that the Fed should expect to raise rates next year instead of 2023. Powell recommended.

Goldman Sachs economist David Merkel also shared the view that inflation is gradually declining. On October 28 NewsletterMerkel said higher wages would mean lower costs in low-paying areas such as restaurants and the housing market, but that commodity prices should fall once supply problems are resolved.

“Until the supply-demand imbalance is finally resolved … we need to see some one-time deflationary payments next year for this one-time inflation increase this year,” Merkel said, warning that it is difficult to know exactly how. These barriers will be addressed.

New York Times columnist and economist Paul Krugman recently recalled the fear of inflation in 2010-11 and how the country coped with the storm. “… The Fed stayed on its course, rightly arguing that rising prices is a temporary blip, not a precursor to 70-style stagflation. Inflation eased quickly, and it was already low.”

November 10, Conference Board The possible revival of the COVID case and the Fed’s response to inflation and recruitment downgraded its economic forecast. The research group has projected the US economy to grow at an annual rate of 3.5 percent in 2022 and 2.9 percent in 2023.

“Despite recent approval by Congress of a large bipartisan infrastructure package, this forecast is a downgrade from our October outlook. While this package will definitely benefit growth in 2022 and 2023, our forecast already predicts that it will last several months,” the conference said. The board has stated.

The conference board also noted that “it is important to note that our estimates still show strong economic expansion over the next two years.”


Experts Say There Are Ways For The White House To Address Rising Us Inflation And Its Causes Immediately.
Experts say there are ways for the White House to address rising US inflation and its causes immediately.
Photo: AFP / Brendan Smialowski

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