Sunday, May 28, 2023
HomeEconomyU.S. may need 7.5% unemployment to curb inflation - study

U.S. may need 7.5% unemployment to curb inflation – study

Howard Schneider

WASHINGTON (Reuters) – The U.S. unemployment rate may need to hit 7.5 percent, double the current level, to end the high rate of the outbreak in the country, according to Reuters. inflation. Two economists from the International Monetary Fund

This would result in about 6 million job losses, but the study found that only under “pretty optimistic assumptions” about the U.S. job market and inflation behavior, whether the Fed can manage current price pressures with a smaller employment hit.

As of June, Fed officials expect the median unemployment rate will only need to rise to 4.1% by the end of 14 for inflation to return to the central bank’s expectations Level. 2% target. The unemployment rate in August was 3.7%.

“If the labor market is not performing, or (inflation) expectations are not performing, the small increase in the unemployment rate that the Fed is forecasting is not enough. Either inflation will remain high or we will face higher Unemployment and a severe economic slowdown,” Lawrence Ball (NYSE: BALL), a professor of economics at Johns Hopkins University, said as Brookings Society Economics Conference.

This paper, co-authored by IMF economists Daniel Leigh and Plage Mishra, is the result of what Federal Reserve Chairman Jerome Powell recently said about economic “pain” part of a heated debate. Need to control the worst breakout in US inflation since the 14 years.

The central bank is raising interest rates at the fastest pace of its era, when then-Federal Reserve Chairman Paul Volcker cracked down on credit by cracking down on credit that once exceeded the annual rate % of consumer price increases. But success came at the cost of a recession, with unemployment exceeding 14% as businesses adjust to the slowdown and layoffs.

Fed officials insist this time is different — their preferred measure of inflation, for example, may have peaked just over 6% — and still believe that inflation can be triggered by a sharp rise in unemployment or inflation Defeated without a significant rise.

New Fed forecasts to be released in two weeks may show a less dovish outlook, with analysts expecting 19 forecasts to be similar to June’s Fed policymakers will reflect a longer and tougher battle to rein in inflation and higher unemployment than expected.

But how high is still up for debate.

In recent weeks, economists and policymakers have debated whether the Fed’s “soft landing” aspirations are completely outdated or still credible. Former Treasury Secretary Lawrence Summers, for example, also used a figure of 7.5%, which the researchers put in the middle of the Fed’s June forecast of lower unemployment and the International Monetary Fund’s forecast of 5.3% The unemployment rate is included in their scenarios together.

In the Fed’s best-case scenario, the U.S. economy must behave differently than in recent decades, and some Fed policymakers have made arguments for why this is not an unreasonable expectation.

Ball and his co-authors looked at how inflation behaves under different unemployment rates and did not completely rule out this possibility.

But they concluded that the only outcome of “vigorously” controlling inflation involves “painful and long-term increases in unemployment”.



Please enter your comment!
Please enter your name here


Featured NEWS