As the COVID-19 pandemic continues to spread, the United States is being forced to fight a rival that is rising again: inflation. This controversy can be traced back to the 1970s, when the Federal Reserve Board gradually tightened the money supply.
The current debate on inflation revolves around a question: Is it temporary or will it persist in the foreseeable future? The answer to this divides commentators, analysts, and policymakers into different camps, and what this means for the economy as a whole.
In the recent inflation measurement, it is undeniable that prices have risen steadily last year.
Department of Labor recently Consumer Price Index (CPI) The study found that, driven by soaring energy prices, the inflation rate rose by 6.2% in October, reaching the highest level in 30 years.The price is Wholesale goods At the same time, after an increase of 0.6% last month, there was the highest increase in a decade.The impact of rising prices is reflected in the decline in GDP the third quater As consumption shrinks.
Federal Reserve under the chairmanship Jerome Powell with Biden Administration The insistence that sustained inflation is temporary has caused economists to diverge.In a press conference on November 3, Powell recognize This means that there are different definitions for different people, but to clarify that the Fed does not view it from a time perspective.
Powell said at the Federal Reserve press conference: “For some people, it has a sense of’transience’ and has a real-time component on a monthly basis.” He went on to explain that the central bank treats it more. It is the question of whether rising prices will lead to “permanent or sustained high inflation”.
Federal Reserve Chairman Jerome Powell said he thinks it’s time to scale back the bank’s huge bond purchase program
Photo: Swimming Pool/Sarah Silbig
Former Treasury Secretary Lawrence Summers (Lawrence Summers) expressed disagreement with the Fed’s position in a column. Washington post. He pointed to a speech In August, Powell proposed five pillars in Jackson Hole, Wyoming, to support his inflationary views.
When referring to recent cross-sectoral inflation and unemployment data, Summers pointed out that arguments supporting Powell’s position on temporary inflation have been criticized. The former Treasury secretary warned that insisting on this view could make the Fed turn a blind eye to a bubble that may form under its nose.
“Meme stocks, retail option purchases, crypto market development, credit spreads, and some startup valuations indicate major bubbles in certain markets,” wrote Summers, a professor at Harvard Kennedy School.
The Fed’s optimistic view on inflation has not been recognized by consumers, who believe that inflation is at its worst level since the Great Recession Ten years agoThis may bring its own problems because companies are raising wages to attract workers because they can bargain more freely for better compensation or benefits during the economic recovery.
This may lead to what economists call a spiral increase in wage prices, in which prices rise to match higher wages.professor Narayana CoachellakotaThe former governor of the Federal Reserve Bank of Minneapolis warned in July that if left unchecked, this could become a problem similar to the inflationary woes of the 1960s and 1970s.
“If companies and workers assume an inflation rate of more than 2% when making wage decisions for the next fiscal year, it will begin to realize itself,” wrote Kocherlakota, who now teaches at the University of Rochester. “If we incorporate it into wage-setting practices and price-setting practices, this could become a big problem.”
This is not to say that other economists disagree with the Fed’s views. Jason Furman, the former chairman of the White House Council of Economic Advisers under President Obama, said he expects inflation to remain “disturbingly high,” but its growth will slow over time.
In a column Wall Street JournalFurman believes that the Fed has the right framework to deal with emerging inflation, while leaving room for maneuver. In order to take full advantage of this, he urged the Fed to abandon any “wishful thinking that inflation is about to fall sharply” in the future, and to speed up the cautious pace of the gradual reduction of its asset purchase plan recently launched during the pandemic.
“The central bank should express a more realistic understanding of inflation and firm monetary policy by reducing asset purchases more quickly,” Furman said. He believes that the Fed should set an expectation of raising interest rates next year instead of 2023, as Powell suggested.
Goldman Sachs economist David Mericle also agrees with the view that inflation will gradually decline.On October 28 communicationMerrick said that rising wages will mean increased costs in low-income industries such as restaurants and the real estate market, but as the supply problem is resolved, commodity prices should fall.
“As long as the imbalance between supply and demand is finally resolved… we should see the return of one-off deflation next year, because this year’s one-off inflation has soared,” Merrick said, warning that it is still difficult to determine how these bottlenecks will be resolved. .
The New York Times columnist and economist Paul Krugman (Paul Krugman) recently reminded people of the 2010-11 inflation panic and how the country has weathered the storm. “…The Fed sticks to its own line and correctly believes that price increases are a temporary short-lived, rather than a harbinger of 1970s-style stagflation. Inflation quickly subsided and has remained low since.”
November 10th, the consultation meeting Due to the potential resurgence of the COVID case and the Fed’s response to inflation and hiring, it lowered its economic forecasts. The research team predicts that the US economy will grow by 3.5% and 2.9% year-on-year in 2022 and 2023.
“Although Congress recently approved a large-scale bipartisan infrastructure package, the forecast is still lower than our October outlook. Although the plan will certainly benefit growth in 2022 and 2023, our forecasts have assumed that it will It lasts for a few months,” the conference bureau said.
The Conference Committee also pointed out that “it is important to note that our forecast still shows strong economic growth in the next two years.”
Experts say that the White House has almost no way to quickly resolve rising inflation in the United States and its causes, including the port issue.
Photo: AFP/Brendan Smialowski
