At the Federal Reserve's (Fed) annual meeting in Jackson Hole in late August, Fedxo walletChairman Jerome Powell made a statement in a way that signaled: Fed ready to raise interest rates to 0.75% in September to control inflation If it did, it would be considered an "abnormally large" rise for the third time in a row. Dow Jones index plummets
In fact, the Fed chairman's statement "It's not new," but it's a confirmation of the Fed's previously expressed stance. That is, the interest rate hike will not be reversed until inflation has eased as targeted. because he didn't want to repeat the 1970s.
However, the report by Francesco Bianchi, an economist at Johns Hopkins University and Leonardo Meloxi, a senior economist of the Chicago Fed Branch who presented to the same meeting argued that the current inflation situation Much has been driven by fiscal spending to alleviate the economic crisis caused by COVID-19. So just a big interest rate hike alone won't be enough to bring inflation down. but also to control fiscal expenditure
The report stated that High public debt and continued rising government spending As a result, public expectations of inflation remain high. So simply raising interest rates won't reduce inflation expectations the Fed wants. At the same time, the interest rate hike will also raise the cost of public debt settlement, which currently stands at $30.8 trillion.
Congress has approved an estimated $4.5 trillion in budget spending related to COVID-19 mitigation, resulting in a $3.1 trillion budget deficit in 2020, a $2.8 trillion deficit in 2021 and the first 10 months of 2022. It has a deficit of $726 billion. Public debt stood at 123% of GDP, although it's slightly down from 128% in 2020, but it's still an unprecedented high since 1946.
“When the fiscal imbalance is high and the reliability of fiscal planning is declining. This will make it harder for the Fed to use monetary measures to stabilize inflation. and causing higher government debt repayment costs. If the Fed continues to hold on to this trend of raising interest rates. will make the situation worse,” the report said, warning that If governments do not tighten fiscal spending, there will be a vicious cycle: interest rates continue to rise, inflation rises, economic stagnation and public debt rise.
The report pointed to the long-term high inflation risk that the United States currently faces. It stems primarily from a mix of very high public debt and a less reliable fiscal framework. Therefore, the formula to combat big inflation that was used in the early 1980s may not work in the current situation.
Amid concerns that continued interest rate hikes will lead to a recession in the US economy. But some economists believe that Employment figures are a good indicator. which the US employment situation indicates that Not in a recession This can be seen from the job openings in July. That rebounded as high as 11.2 million jobs, more than double the number of job seekers that had faded in June.
At the Federal Reserve's (Fed) annual meeting in Jackson Hole in late August, Fed Chairman Jerome Powell made a statement in a way that signaled: Fed ready to raise interest rates to 0.75% in September to control inflation If it did, it would be considered an "abnormally large" rise for the third time in a row. Dow Jones index plummets
In fact, the Fed chairman's statement "It's not new," but it's a confirmation of the Fed's previously expressed stance. That is, the interest rate hike will not be reversed until inflation has eased as targeted. because he didn't want to repeat the 1970s.
However, the report by Francesco Bianchi, an economist at Johns Hopkins University and Leonardo Meloxi, a senior economist of the Chicago Fed Branch who presented to the same meeting argued that the current inflation situation Much has been driven by fiscal spending to alleviate the economic crisis caused by COVID-19. So just a big interest rate hike alone won't be enough to bring inflation down. but also to control fiscal expenditure
The report stated that High public debt and continued rising government spending As a result, public expectations of inflation remain high. So simply raising interest rates won't reduce inflation expectations the Fed wants. At the same time, the interest rate hike will also raise the cost of public debt settlement, which currently stands at $30.8 trillion.
Congress has approved an estimated $4.5 trillion in budget spending related to COVID-19 mitigation, resulting in a $3.1 trillion budget deficit in 2020, a $2.8 trillion deficit in 2021 and the first 10 months of 2022. It has a deficit of $726 billion. Public debt stood at 123% of GDP, although it's slightly down from 128% in 2020, but it's still an unprecedented high since 1946.
“When the fiscal imbalance is high and the reliability of fiscal planning is declining. This will make it harder for the Fed to use monetary measures to stabilize inflation. and causing higher government debt repayment costs. If the Fed continues to hold on to this trend of raising interest rates. will make the situation worse,” the report said, warning that If governments do not tighten fiscal spending, there will be a vicious cycle: interest rates continue to rise, inflation rises, economic stagnation and public debt rise.
The report pointed to the long-term high inflation risk that the United States currently faces. It stems primarily from a mix of very high public debt and a less reliable fiscal framework. Therefore, the formula to combat big inflation that was used in the early 1980s may not work in the current situation.
Amid concerns that continued interest rate hikes will lead to a recession in the US economy. But some economists believe that Employment figures are a good indicator. which the US employment situation indicates that Not in a recession This can be seen from the job openings in July. That rebounded as high as 11.2 million jobs, more than double the number of job seekers that had faded in June.