In the United States, not so long ago, many experts predicted a long, scorching summer of inflation. Today, they are quite surprised to find that this is not the case. Consumer prices were flat in July, and inflation remained low in August. Yet I don’t know of any economist who believes that inflation has been brought under control. Indeed, much of the recent good news is due to lower gas prices, which will not last. But we’re likely to see more good news from falling food prices: The Food and Agriculture Organization’s (FAO) World Food Price Index fell in July, and the effects will no doubt be felt. feel within a few months on supermarket shelves. Already, the price of meat has started to drop.
No one knows if this downturn will be severe enough to qualify as a recession, but it will be painful.
However, the Federal Reserve, the US central bank, has learned not to let its policy be dictated by volatile food and energy price movements, and “underlying” inflation still looks high. The Fed is therefore not ready to change gear; it will continue to raise interest rates to cool the economy, which should lead to higher unemployment and, very possibly, a recession. The Fed is thus conforming to a policy of orthodoxy. But are there other less painful heterodox strategies we could pursue?
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