Washington on 10th September : The ‘funniest economics document of 2022 has warned that a high rate of unemployment will be required to combat inflation.In order to bring the rate of inflation to a level of 2 percent In the meantime, the US might have to endure unemployment of 6.5 percent for at most two years. The paper published by the Brookings Institution by Johns Hopkins macroeconomist Larry Ball with co-authors Daniel Leigh and Prachi Mishra of the International Monetary Fund (IMF) discovered that “this unemployment path will bring inflation to close to the Fed’s goal but only in the case of optimistic assumptions”.
“Under less-than-perfect assumptions about these variables the inflation rate remains significantly above the targets unless unemployment increases by more than what the Fed estimates,” the paper said.
In an opinion piece that followed in The Wall Street Journal, Jason Furman, former chairman of the White House Council of Economic Advisers under Obama, the president Obama called this “the most terrifying economic report of 2022”.
Based on Brookings findings Based on Brookings’ findings, it appears that the Fed must be aggressive in raising rates , even in the event that unemployment continues to rise.
Furman stated that the US would require an average rate of unemployment of approximately 6.5 percent in 2023 and 2024 in order to reach its 2 per cent inflation rate target.
“While fighting against inflation is central bank’s primary goal today however, at some point the Fed should reconsider the significance of winning in the fight,” he wrote in WSJ.
After nearly four years of moderate US inflation the rise in inflation has become an economic issue of the majority of the Covid time.
Fed Chair Jerome Powell said on August 26 that “while higher rates of interest slowing growth, slower growth, and less favorable labor market conditions will reduce inflation however, they will also cause some hardship to households and companies”.
“But the failure to stabilize prices would result in a much greater amount of suffering,” he stressed.
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