The Fed Is Wrong to Make Policies Based upon the Phillips Curve
Speaking at Jackson Hole, Wyoming, on August 26, 2022, the chair of the Federal Reserve, Jerome Powell, said the Fed must continue to raise interest rates—and keep them elevated for a while—to bring the fastest inflation in decades back under control. Powell said that a tighter interest rate stance is likely to come at a cost to workers and overall growth. However, he holds that not acting would allow price increases to become a more permanent feature of the economy and prove even more painful down the road.
“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” Mr. Powell said in a speech. “While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.” He then added: “These are the unfortunate costs of reducing inflation.”
Most economic commentators believe the central bank can influence the rate of economic expansion by means of monetary policy but hold that this influence carries a price: inflation. For instance, if the goal is to reach faster economic growth and a lower unemployment rate, then the economy will experience a higher inflation rate. (Note that inflation is defined, by a popular way of thinking, as increases in the prices of goods and services).
It is held that there is a trade
Article from Mises Wire