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Fed rate hikes won't stop inflation if government spending stays high, paper says
Chase chief economist: Going to take ‘a lot of hard work’ to bring inflation down
Former Chase chief economist Anthony Chan argues employment growth is ‘very, very strong’ as U.S. grapples with economic challenges.
Federal Reserve Chair Jerome Powell reiterated a pledge last week to "forcefully" wrestle inflation under control, no matter the broader economic cost.
But a paper released by researchers at Johns Hopkins University and the Chicago Federal Reserve on the same day as Powell's keynote speech in Jackson Hole suggests the U.S. central bank may fail to cool consumer prices with its interest rate hikes unless government spending slows down in tandem.
"The recent fiscal interventions in response to the COVID pandemic have altered the private sector’s beliefs about the fiscal framework, accelerating the recovery, but also determining an increase in fiscal inflation," the paper said. "This increase in inflation could not have been averted by simply tightening monetary policy. The conquest of post-pandemic inflation requires mutually consistent monetary and fiscal policies to avoid fiscal stagflation."
In other words, taming the inflation crisis that has gripped the U.S. for more than a year requires the Fed to tighten monetary policy, in addition to the federal government pumping the brakes on spending.
FED RAISES INTEREST RATES BY 75 BASIS POINTS IN ANOTHER HISTORIC MOVE TO TACKLE INFLATION