The central bank adjusts interest rates and other aspects of monetary policy in order to meet economic goals. However, there’s always a lag between any adjustment to monetary policy and the desired effect on the economy.
Unemployment and inflation are inversely correlated. The more people that are employed, the faster prices rise, and vice versa.
Right now the Fed is trying to fight out-of-control inflation rates. The methods required to do so will inevitably lead to higher unemployment, and due to the aforementioned lag, there will be a short period of time in which we see higher unemployment and inflation, before we see the desired effect of lowering the inflation rate.
To note, the author expects an unemployment rate of 0.3% above target and describes it as “minor” stagflation.
tl;dr
The central bank adjusts interest rates and other aspects of monetary policy in order to meet economic goals. However, there’s always a lag between any adjustment to monetary policy and the desired effect on the economy.
Unemployment and inflation are inversely correlated. The more people that are employed, the faster prices rise, and vice versa.
Right now the Fed is trying to fight out-of-control inflation rates. The methods required to do so will inevitably lead to higher unemployment, and due to the aforementioned lag, there will be a short period of time in which we see higher unemployment and inflation, before we see the desired effect of lowering the inflation rate.
To note, the author expects an unemployment rate of 0.3% above target and describes it as “minor” stagflation.