![]() Speaking at Friday’s conference, Loretta Mester, president of the Federal Reserve Bank of Cleveland, came closer to accepting the paper’s findings. Those differences, he said, are the “unprecedented” disruption to supply chains since the pandemic the decline in the number of people working or looking for work the fact that the Fed has more credibility as an inflation-fighter than in the 1970s and the fact that the Fed has moved forcefully to fight inflation with eight rate hikes in the past year. “The current situation is different from past episodes in at least four ways.” “History is useful, but it can only tell us so much, particularly in situations without historical precedent,” Jefferson said. WATCH: Some economists concerned aggressive interest rate hikes do more harm than good Jefferson downplayed the role of past episodes of inflation, noting that the pandemic so disrupted the economy that historical patterns are less reliable as a guide this time. Yet Philip Jefferson, a member of the Fed’s Board of Governors, offered remarks Friday at the monetary policy conference that suggested that a recession may not be inevitable, a view that Fed Chair Jerome Powell has also expressed. The latest evidence of price acceleration makes it more likely that the Fed will need to do more to defeat high inflation. Prices jumped 0.6 percent from December to January, the biggest monthly increase since June. The perception that the central bank will need to keep raising borrowing costs was reinforced by a government report Friday that the Fed’s preferred inflation gauge accelerated in January after several months of declines. Over the past year, the Fed has raised its key short-term rate eight times. The paper coincides with a growing awareness in financial markets and among economists that the Fed will likely have to boost interest rates even higher than previously estimated. economist at JPMorgan and a former Fed staffer Peter Hooper, vice chair of research at Deutsche Bank, and Frederic Mishkin, a former Federal Reserve governor. The paper was written by a group of economists, including: Stephen Cecchetti, a professor at Brandeis University and a former research director at the Federal Reserve Bank of New York Michael Feroli, chief U.S. ![]() “There is no post-1950 precedent for a sizable … disinflation that does not entail substantial economic sacrifice or recession,” the paper concluded. In each case, a recession resulted.ĮXPLAINER: Here’s what the Federal Reserve interest rate hike means for you The researchers reviewed 16 episodes since 1950 when a central bank like the Fed raised the cost of borrowing to fight inflation, in the United States, Canada, Germany and the United Kingdom. ![]() It all adds up to a recipe for recession.Īnd that, the research paper concludes, is just what has happened in previous periods of high inflation. The result - steadily more expensive loans - can force companies to cancel new ventures and cut jobs and consumers to reduce spending. Those higher rates, in turn, make mortgages, auto loans, credit card borrowing and business lending more expensive.īut sometimes inflation pressures still prove persistent and require ever-higher rates to tame. When inflation soars, as it has for the past two years, the Fed typically responds by raising interest rates, often aggressively, to try to cool the economy and slow price increases. The paper was produced by a group of leading economists, and three Fed officials addressed its conclusions in their own remarks Friday at a conference on monetary policy in New York. Not according to a new research paper that concludes that such an “immaculate disinflation” has never happened before. ![]() NEW YORK (AP) - Can the Federal Reserve keep raising interest rates and defeat the nation’s worst bout of inflation in 40 years without causing a recession? ![]()
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