2min chapter

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A Strange Moment for the U.S. Economy

The Daily

CHAPTER

Is Inflation Coming?

An inflation starts rising, it ecomes faster than we've been comfortable with in recent years. That's bad news for anybody who's sitting on savings in a savings account. The other concern is that the federal reserve looks at that possibility and says 'We better get control of this before it gets out of control' And so they raise interest rates to try to slow down the economy.

00:00
Speaker 1
And
Speaker 2
so if people do start acting as if they think inflation is coming, what specifically would you be worried about happening?
Speaker 1
So i think this is where there are two concerns. One is that that really does become a self fulfilling prophecy. An inflation starts rising, it ecomes faster than we've been comfortable with in recent years. And that's, look, that's bad news for a lot of people. That's bad news for anybody who's sitting on savings in a savings account, where that the value of that gets slower. It's bad news for anybody on a fixed income who is not seeing their income rise along with inflation, and therefore is taking seeing thar their income and is actual buying power decline. Is bad news for businesses that are trying to navigate a world in which their input prices ar arising really rapidly. So that's one concern. The other concern is that the federal reserve looks at that possibility, becomes concerned about it, and says, we better get control of this before it gets out of control. And so they raise interest rates to try to slow down the economy. And we end up needing to weaken the economy intentionally in order to prevent that run up in prices. Got
Speaker 2
it that the government, the federal reserve, could essentially start a recession on purpose in order to deal with the thread of inflation?
Speaker 1
Look, this is what happened in the nineteen seventies, an early nineteen eighties. We saw in the sixties and seventies, for a a variety of reasons, inflation really pick up. And the only way that we got under control was that the fed stepped in and hiked interest rates so high that it crushed the ing market. It eventually crushed the job market and created a really punishing, brutal recession. They succeeded. They got control of inflation, but at a tremendous cost to it to a huge number of americans.

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