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Biden’s top economic adviser on inflation, interest rates and possible recession
PBS NewsHourJUL 2023
The Spin
Establishment-critical narrative
Deliberately slowing the economy and increasing unemployment in order to tackle inflation makes no sense and reflects a callous disregard for its destructive impact on the lives of millions of people. Most estimates say US unemployment will have to reach as high as 7.5%, more than double its current level, to get inflation down to the Fed’s target of 2%. The wage-price spiral theory doesn’t explain the current rise in prices. Wage increases can’t be driving inflation as they are continuing to lag behind it.
Pro-establishment narrative
High employment and strong retail sales are undermining the Fed's efforts to tame inflation. As long as the labor market remains tight, workers remain in a strong bargaining position and can command higher wages, which in turn fuels strong consumer spending. This means that interest rates must continue to be raised aggressively now, probably well above 5%, in order to increase unemployment, until inflation is finally defeated. Failure to tackle inflation now would risk a replay of the 1970s, when inflation in the US peaked at 12%.
Metaculus Prediction
There's a 56% chance that the Federal Reserve will set a target policy rate that is negative by 2050, according to the Metaculus prediction community.
