“There is no post-1950 precedent for a sizable ... disinflation that does not entail substantial economic sacrifice or recession,” the paper concluded.
that the Fed will likely have to boost interest rates even higher than previously estimated. Over the past year, the Fed has raised its key short-term rate eight times.government report Friday
Yet Philip Jefferson, a member of the Fed’s Board of Governors, offered remarks Friday at the monetary policy conference that suggested that a recession may not be inevitable, a view that Fed Chair Jerome Powell has also expressed. Jefferson downplayed the role of past episodes of inflation, noting that the pandemic so disrupted the economy that historical patterns are less reliable as a guide this time.
Speaking at Friday’s conference, Loretta Mester, president of the Federal Reserve Bank of Cleveland, came closer to accepting the paper’s findings. She said its conclusions, along with other recent research, “suggest that inflation could be more persistent than currently anticipated.” Yet Collins also suggested that the Fed will have to keep tightening credit and keep rates higher “for some, perhaps extended, time.” last month suggested that the economy is more durable than it appeared at the end of last year. Such signs of resilience raised hopes that a recession could be avoided even if the Fed keeps tightening credit and makes mortgages, auto loans, credit card borrowing and many corporate loans increasingly expensive.
Using the historical data, the authors project that if the Fed raises its benchmark rate to between 5.2% and 5.5% — three-quarters of a point higher than its current level, which many economists envision the Fed doing — the unemployment rate would rise to 5.1%, while inflation would fall as low as 2.9%, by the end of 2025.
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