Inflation remains at a four-decade high, decreasing only slightly since last month, while consumer prices are up 8.2% over the past year, according to the Bureau of Labor Statistics. President Joe Biden says there won’t be a recession, and if one happens, it’ll be “very slight.”
Supply chain disruptions from COVID and the war in Ukraine, plus pandemic stimulus checks have contributed to today’s inflation, says Andrew Jalil, an associate professor of economics at Occidental College.
“Many of the relief measures were important, we were undergoing a once-in-a-generation or lifetime pandemic. And the fiscal stimulus that was provided was more akin to relief. … There is an academic debate about whether it was perhaps too large, more than necessary, lasted longer than was necessary. So there is a possibility that that could have fueled some of the inflation.”
He notes when inflation persists, it becomes ingrained into people’s expectations, so the Federal Reserve is moving quickly to reduce it.
“I think what the Federal Reserve would like to ideally achieve is a Goldilocks moment where they don't raise interest rates too much and cause a recession. But they also don't keep them too low and further fuel inflation. What they would like to do is raise interest rates by the exact amount to slow down total spending, to slow down inflationary pressures without actually triggering a recession. It's a very delicate balancing act. And we don't quite know for sure whether the Fed is getting it right.”
The last period of high inflation was during the 1970s and 1980s, but Jalil says it’s hard to compare economies. That’s because inflation kept on rising for more than a decade. Then-Federal Reserve Chair Paul Volcker was forced to raise interest rates, much like Jerome Powell today.
“They did cause a recession. But they did get the rate of inflation down to about 2%, give or take one or two percentage points here or there. And then over the next four decades, we had a relative period of price stability, so it required strong actions by the Federal Reserve to get inflation down. … In this situation, the large increase in inflation really materialized just over the past year. So it does feel quite different in nature.”