{"id":171508,"date":"2023-02-24T18:55:43","date_gmt":"2023-02-24T18:55:43","guid":{"rendered":"https:\/\/precoinnews.com\/?p=171508"},"modified":"2023-02-24T18:55:43","modified_gmt":"2023-02-24T18:55:43","slug":"painless-disinflation-is-looking-less-likely","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/world-news\/painless-disinflation-is-looking-less-likely\/","title":{"rendered":"Painless disinflation is looking less likely"},"content":{"rendered":"<p><img decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/images.axios.com\/r4h5rHlyjiNB9Gtw2OSgSzifhpQ=\/0x0:1920x1080\/1920x1080\/2023\/02\/24\/1677254441882.jpg\"><\/p>\n<p>Illustration: Eniola Odetunde\/Axios<\/p>\n<p>For a while there, it was looking like a dream scenario for the U.S. economy just might be coming true: inflation falling while the job market remained robust, and the pain caused by Federal Reserve tightening confined to a few industries.<\/p>\n<ul>\n<li><strong>Alas, it hasn&#x27;t quite<\/strong> worked out that way in the recent run of data, with prices staying stubbornly high.<\/li>\n<\/ul>\n<p><strong>Why it matters: <\/strong>There is little doubt at this point that the Fed has the resolve to keep raising interest rates if inflation pressures don&#x27;t dissipate. But it is looking more likely that it will take a more serious economic downturn than seen so far to make that happen.<\/p>\n<p><strong>Driving the news: <\/strong>New data out Friday morning showed consumer spending and inflation heated up in January.<\/p>\n<ul>\n<li>Meanwhile, a paper presented Friday morning at a high-profile University of Chicago conference argues that, based on a study of past periods, &quot;an immaculate disinflation would be unprecedented.&quot;<\/li>\n<li>The paper was presented at the Booth School of Business Monetary Policy Forum, with (by our count) seven out of 19 members of the Fed&#x27;s policy-setting committee participating.<\/li>\n<\/ul>\n<p><strong>The details: <\/strong>The paper&#x27;s five authors, including former Fed governor Frederic Mishkin, examined periods of disinflation in the post-World War II era in four countries. They calculated a &quot;sacrifice ratio,&quot; i.e., how much economic pain, in the form of unemployment and other measures, it took to bring down inflation.<\/p>\n<ul>\n<li>The results suggest that a mild recession will be necessary for inflation to come down to the Fed&#x27;s 2% target.<\/li>\n<li>&quot;Our historical analysis and modeling exercise lead us to conclude that the Federal Reserve and other key central banks will find it hard to achieve their disinflation goals without a significant sacrifice in economic activity,&quot; wrote Mishkin, along with Stephen G. Cecchetti, Michael Feroli, Peter Hooper and Kermit Schoenholtz.<\/li>\n<\/ul>\n<p><strong>Yes, but: <\/strong>The open question is whether post-pandemic dynamics are so unique that relying on historical parallels doesn&#x27;t really make sense. That is exactly what Fed governor Philip Jefferson, a discussant of the paper, emphasized Friday morning.<\/p>\n<ul>\n<li>&quot;History is replete with confounding factors that make parsing difficult,&quot; Jefferson said.<\/li>\n<li>&quot;The idiosyncratic nature of the pandemic implies that economic models, while still useful in many respects, are going to have limited applicability,&quot; he added. &quot;Taken at face value, the model assumes, as all models do, that the past tells policymakers what they need to know.&quot;<\/li>\n<li>&quot;But current inflation dynamics are being driven by some pandemic-specific factors not seen in the historical data,&quot; he said, and as such, policymakers need to look at a broader range of factors.<\/li>\n<\/ul>\n<p>Source: <a href=\"https:\/\/www.axios.com\/2023\/02\/24\/painless-disinflation-is-looking-less-likely\" target=\"_blank\" rel=\"noopener\">Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Illustration: Eniola Odetunde\/Axios For a while there,<\/p>\n","protected":false},"author":3,"featured_media":171507,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23056],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.7 - 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