Jón Steinsson believes that a painless disinflation is no longer plausible
Jón Steinsson believes that a painless disinflation is no longer plausible
"The economics professor says that the Fed's hard-won credibility is at stake."
The Economist,
After rising steadily for over a year, inflation in America is now higher than it has been for four decades. On May 4th the Federal Reserve raised the federal funds rate by 0.5 percentage points. Jerome Powell, its chair, also indicated that further 0.5-percentage-point increases are likely in June and July. Together, these actions will constitute the fastest tightening of policy since the 1980s.
This "expeditious" tightening is a welcome shift from late last year. Back then the thinking of the Fed, of pundits and of market participants fell far behind the curve. The Fed was expected to raise rates by less than one percentage point over the course of 2022. Proposals (including one of my own) to raise rates by a total of two percentage points were considered radical.
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