One Harvard University economist is warning that high inflation will remain through 2023.
Last week, the Bureau of Labor Statistics reported that in December consumer prices rose by 7% over the previous year — the highest rate in roughly 40 years. Likewise, “real average hourly earnings” — which consider the effect of inflation — decreased by 2.4% from December 2020 to December 2021, slashing the purchasing power of American consumers.
In an interview with Fox Business, Kenneth Rogoff — a Harvard economist and chess Grandmaster — explained that “it’s not so easy to raise interest rates to fight inflation when public and private data is high, when the stock market is high, when housing prices are high, when the economy is still weak.” Central bankers willing to do so would have “a lot of stomach.”
Rogoff added that policymakers at the Federal Reserve must balance the need to cut runaway inflation while avoiding a recession. “And I think the question is: How much are they going to have to step on the brakes to really slow inflation down?” he said, predicting that the Federal Reserve will be conservative in their rate increases.
As the central bank has not used rate hikes to kill high inflation for decades, Rogoff said “it’s not clear how it’s going to work.”
Voters, meanwhile, are not pleased with President Joe Biden and his handling of the economy. Indeed, inflation has surged from 1.4% to 7% since he ascended to the Oval Office.
On Sunday, a poll from CBS News found that half of voters are “frustrated” with the Biden presidency. Nearly 50% described themselves as “disappointed,” and 40% said they were “nervous.” A mere 25% of voters described themselves as either “calm” or “satisfied.”
Most voters pointed to pocketbook issues — 58% said that the Biden administration was not focusing enough on the economy as a whole, while 65% said they were not sufficiently focused on the issue of inflation.
Some progressive economists are now urging policymakers to focus on addressing price levels. Larry Summers — who served as Treasury Secretary under former President Bill Clinton and director of the National Economic Council under former President Barack Obama — warned in an interview last week that the United States is moving toward “higher entrenched inflation.”
“I think the data flow is saying what I’ve thought for quite some time that, yes, there are transitory elements in inflation, and very likely they will recede, but we are basically moving towards higher entrenched inflation,” Summers said. “It’s there in expectations, it’s there in wages, it’s there in labor shortages, it’s there in the pervasive pattern across many different prices.”
“And people try to excuse it by picking this figure and that figure from month to month, but we’ve got an overheated economy, and the Fed’s gonna have a very real challenge of cooling that economy off and doing it in a controlled way,” he continued. “That has not been done very successfully in the past. So it’s going to be a very challenging year for macroeconomic policy.”