Expert Says Giving Inflation ‘Time To Be Flexible’ Is in Everyone’s Best Interest (and Why Recession Is Worse Scenario)
This prolonged period of high inflation is undoubtedly taking its toll on everyone and everything that touches them. However, according to a leading expert, living through a recession would be a much worse situation.
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Writing on the Economic Policy Institute’s (EPI) “Working Economics” blog, the institute’s Director of Research Josh Bivens argued that “the data is saying we have time to be flexible,” and that the damage caused by a recession “would be far higher than any benefit to piling on more contradictory policy to rein in already-fading inflation.”
“Many voices in this debate have implicitly or explicitly argued that recession and inflation cause equivalent damage, or that inflation actually causes worse damage than recession,” stated Bivens. “This view is clearly wrong — the economic damage wrought by recessions is far greater than that by single-digit inflation rates.”
According to Axios, some progressive analysts are pointing to a number of encouraging factors that show inflation to be easing rather than getting worse. Despite coming as a shock to many, June’s high inflation rate was fueled in large part by energy index increases. In the month of July, however, gas price rates have dipped at their quickest pace since the pandemic.
Although most consumer price indexes rose across the board, key indicator commodities like lumber are down from recent highs. “There are a lot of reasons for believing that inflation has peaked,” said senior economist at the progressive Center for Economic and Policy Research Dean Baker, per Axios.
If we are indeed seeing an easing of inflation, then an easing of the Federal Reserve’s rate hikes should be on the cards too, argued Bivens. However, the opposite is what is likely to happen when the Fed meets at its next Federal Open Market Committee meeting on July 26-27.
All signs point to at least another rate raise of three-quarters of a percentage point at the next meeting. Although, as CNBC pointed out, there are some Wall Street experts that think the Fed may choose to raise interest rates by a full percentage point.
Fed chairman Jerome Powell and the Reserve board are determined to tame inflation and will attempt to do so through their series of interest rate hikes, even if it results in raising the unemployment rate or tipping the U.S. economy into a recession.
As The Wall Street Journal reported, Powell himself has indicated he would tolerate a recession to get out of this current cycle of runaway inflation, something Bivens would consider a huge mistake. While inflation unequally distributes wealth and profits, everyone suffers during a recession and the “economy is poorer,” the EPI expert claimed.
Additionally, he feels that people are mistaken about the nature of inflation, that it can only increase upwards to a tipping point before getting rescued by a recession.
“This isn’t true,” Bivens asserted in his blog post. “The most obvious way this is not true is when much of overall inflation is driven by certain commodities like energy and food. These commodities’ prices whipsaw up and down a lot and put substantial upward and then downward pressure on inflation without a recession necessarily intervening.”
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