Inflation Hits 40-Year Peak, CMU Professor Explains Next Steps
The rising inflation has hit a new 40-year high. Data released by the Bureau of Labor Statistics shows the Consumer Price Index rose to 8.5% in March. This is the highest inflation has been since the early 1980s. but it did go back down.
You don’t need to know what the Consumer Price Index is or how it’s officially measured to know inflation is high, everything is more expensive.
“It has some inertia and when it starts to take off, it becomes almost self fulfilling,” said Taylor, “People expect prices to go up so they demand higher wage increases and then firms have to raise prices.”
When inflation peaked in the 80s, is steadily rose for 15 years to its peak.
“The last time we had this kind of problem we had a double problem, high unemployment and high inflation at the same time,” said Taylor, “The good news here is that unemployment is at a 50 year low.”
The Federal Reserve got inflation in check by halting money flow and jacking up interest rates.
“A 20% interest rate and contracted the money supply dramatically. Doing that sharply slowed down the economy and brought the inflation down but it also cost a very severe recession,” said Taylor.
He says the Fed won’t try that again, they want a soft landing.
“I think what the Fed hopes is by raising the rates by little increments, it’ll bring inflation down,” said Taylor, “So let’s say a year from now maybe inflation’s at 4% and maybe the overnight rate is also around 4%.”
That will take time and there’s no guarantee it will work. It’s a tightrope walk to be effective against inflation and avoid disaster.
“Are we going to see a recession? Are the Fed’s actions here going to cause our economy to go into a recession?” said Taylor, “I think it’s sort of a 50-50 toss up right now.”