Stiglitz said that for the U.S. economy to recover, it needs to increase intervention on the supply side, rather than raising interest rates through the Federal Reserve.
At this week’s annual meeting of the World Economic Forum in Davos, Nobel laureate Stiglitz said current inflation was “an order of magnitude worse” than it was in the 1970s and the Fed was “completely unprepared for the crisis” “It’s not just about oil, it’s a hodgepodge of food, oil supplies and the Covid-19 crisis.
Stiglitz said that for the U.S. economy to recover, it needs to increase intervention on the supply side, rather than raising interest rates through the Federal Reserve, which will not control inflation. He pointed out:
Raising interest rates will not solve the inflation problem because it will not provide more food. It just makes things harder because you won’t be able to invest.
At 2 a.m. Beijing time on Thursday, the Federal Reserve’s FOMC will release the minutes of its May monetary policy meeting , from which investors may learn more about the Fed’s interest rate hike stance. But Stiglitz pointed out that the Fed’s interest rate hike did not interfere with the supply side. He mentioned one of Biden’s efforts – providing more care for children, so that more women can enter the labor market, or relieve part of the labor force. The problem of insufficient supply.
Stiglitz insists that food production must be a priority, both in the U.S. and globally. He stated:
America used to have a surplus on food, and we can go back to that. At least we need to find a way to increase global supply, which is better than creating a depression. Stifling the economy by raising interest rates will not solve the inflation problem in any time frame.
Another economist also gave his opinion on inflation at the forum. Jason Furman, a Harvard professor and former chairman of the White House Council of Economic Advisers, said:
We are returning to the old days of monetary policy, where employment was far ahead of inflation and inflation became irrelevant. Unless inflation disappears within the next six months, there will be a hard lesson that will be remembered as a negative lesson by Fed officials for 20 to 30 years.
The impact varies by region, Furman said. He argues that the US needs “hawkish” policies because inflation is homegrown, but ECB President Christine Lagarde should be “dovish for political reasons” as Europe faces a short-lived energy shock and needs “solidarity” unanimous” against Russia.
He added that any fiscal support should be aimed at households in the bottom 20 percent of income earners, as general tactics such as tax cuts will only further fuel inflation.
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