Federal Reserve Chair Jerome Powell is facing an increasingly grim calculus after yet another hot inflation reading last week: He probably has to push the economy into recession in order to regain control of prices.
After spending much of last year sounding a bit like the inflation-tolerant, former central bank chief Arthur Burns, Powell has increasingly taken on the mantle of inflation-slayer—and Fed icon—Paul Volcker. It’s a role he’s likely to embrace with relish on Wednesday, when he speaks with reporters after a widely-expected decision by the Fed to raise interest rates by another half percentage point.
But so far at least, he’s shied away from endorsing the tough monetary medicine—and punishingly deep recession—that it took for Volcker to break the back of inflation four decades ago. While Powell has recently acknowledged that getting price pressures under control could require some pain—and maybe even higher unemployment—he’s steered clear of talking about a recession.
That’s perhaps understandable, given how fraught politically that is, especially for President Joe Biden’s Democratic Party ahead of mid-term elections in November.
“The chairman of the Fed doesn’t want to let the ‘r’ word slip out of his mouth in a positive way, that we need a recession,” former US central bank policy maker Alan Blinder said. “But there are a lot of euphemisms and he’ll use them.”
An increasing number of economists—including ex-Fed Vice Chair Blinder—say it may take an economic contraction and higher unemployment to bring inflation down to more tolerable levels, much less back to the Fed’s 2% price target.
“I’ve become more pessimistic about the opportunity of stabilizing inflation at an acceptable level without a…
Source : time
