Research report: Fed can’t curb inflation without big rate hikes

[February 25, 2023](Compiled and reported by Epoch Times reporter Gao Shan) According to a research report released on Friday (February 24),the fedunlikely without substantialhikeand lead toeconomic recessioncase, reaching a lowerinflationthe goal of.

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forwardthe fedTrustee Frederic Mishkin is one of the authors of the white paper.This white paper examines the Fed’s efforts to createdeflationHistory.

While many current Fed officials believe they can achieve a “soft landing” while addressing high prices, the research notes that this is unlikely to happen.

“We did not find a single instance where Fed-induceddeflationoccurs, does not appeareconomic recession. “

The report was presented Friday morning at a Monetary Policy Forum hosted by the University of Chicago Booth School of Business.

In recent times, the Fed has implemented a series of aggressivehikemeasures in an effort to curb the highest levels in about 41 yearsinflation. Markets widely expect several more rate hikes before the Fed pauses in its steps to assess the impact of tightening on the economy.

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However, the report suggested that taming inflation may still be some way off.

“Simulations from our baseline model suggest that the Fed will need to tighten policy substantially further in order to achieve its inflation target by the end of 2025,” the experts said.

They added: “Even assuming stable inflation expectations, the outcome of our analysis is the ability of the Fed to achieve a ‘soft landing’, that is, to return inflation to the 2% target by the end of 2025, without a mild recession. “

However, the report rejected the idea of ​​raising the 2% inflation target. Additionally, experts say the central bank should abandon the new policy framework adopted in September 2020. Because the change implements “average inflation targeting,” allowing higher-than-normal inflation for a more inclusive employment recovery.

The researchers said the Fed should return to its pre-emptive mode of raising rates when unemployment falls sharply.

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Fed Governor Philip Jefferson issued a response to the report, saying that the current situation is different from previous inflation. He noted that this Fed is more able to fight inflation than some of its predecessors. “

“Unlike in the late 1960s and 1970s, the Fed is addressing bursts of inflation forcefully and in a timely manner to maintain that credibility and preserve the ‘well-anchored’ attribute of longer-term inflation expectations,” Jefferson said.

Responsible Editor: Ye Ziwei#