However, history also teaches that central banks cannot expect inflation to decline due to temporary factors. In the 1970s, there were two periods when energy and food prices rose sharply, which increased headline inflation for some time. But as the direct impact on headline inflation faded, core inflation continued to rise more than before. One of the likely factors was that the public generally expected higher inflation – one of the reasons why we now monitor inflation expectations so carefully.17 In addition to their elementary philosophical differences, disagreements among economists arise due to various other factors. Recession and recovery so far The pandemic recession – the shortest but deepest on record – displaced about 30 million workers in two months.2 The decline in output in the second quarter of 2020 was twice as high as the total decline during the Great Recession of 2007-09.3 But the pace of recovery exceeded expectations. with production surpassing its previous peak after just four quarters, less than half the time it takes after the Great Recession. As is generally the case, the recovery in employment has been less than that of output; Nevertheless, employment gains have also occurred faster than expected.4 So how is it that two experienced and skilled economists study and analyze the same data, and each makes a different forecast for the country`s economy? Why do these experts so often disagree? As we shall see, there is no simple answer; There are many reasons for the different opinions of economists. 8. Lower used car prices would begin to keep inflation low over 12 months once most previous price increases fall out of the 12-month window. Back to text Both economic philosophies have advantages and disadvantages. But these strongly entrenched and contradictory beliefs are a major cause of disagreement among economists. Moreover, each philosophy colors the way these hostile economists see both macroeconomics and microeconomics. As a result, each of their economic statements and forecasts is greatly influenced by their respective philosophical biases.
11. The way in which the CIE combines the underlying measures means that it does not tend to be influenced by underlying movements specific to individual measures; the CIE will reflect movements that are more common in the underlying measures. Back to text The analysis and interpretation of economic data is both art and science. In its simplest scientific aspect, the economy is usually predictable. For example, if there is a high demand for a product and the product is scarce, its price will increase. If the price of the product increases, the demand will decrease. At a certain high price, the demand for the product will almost stop. Employment figures are also a predictable indicator. If national employment is close to 100%, the economy will generally flourish and employers will have to pay higher wages to attract staff. The data received should provide more evidence that some of the imbalances between supply and demand are improving, and more evidence of a continued slowdown in inflation, particularly in the prices of goods and services, which have been hardest hit by the pandemic. We also expect job creation to continue to be strong. And we will learn more about the effects of the delta variant.
Right now, I think the policy is well positioned; As always, we are ready to adjust the policy accordingly in order to achieve our goals. The timing and pace of the impending decline in asset purchases will not serve to send a direct signal about the timing of the rate hike, for which we have formulated a different and much stricter test. We have said that we will continue to maintain the target range of the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 per cent and is on track to moderately exceed 2 per cent for some time. We have a lot of work to do to reach as many jobs as possible, and time will tell if we have achieved inflation of 2% on a sustainable basis. Now suppose three economists look at some or all of the above data and make three different forecasts for the U.S. economy. With the help of the government, Keynes wanted to mean active monetary and fiscal policy aimed at controlling the money supply and adjusting the Federal Reserve`s interest rates to changing economic conditions. Economists can be employed in a variety of different jobs. You can work for the government, for companies or in the banking, brokerage or finance sectors.
You can hold positions on Wall Street or in academia, or work as a journalist. Any of these employers may have goals or programs that influence the opinions of their economists. The economists we find at odds are those who are frequently quoted in the media. Countless others have their disagreements or agreements quietly, beyond public control. Finally, as mentioned at the beginning of this article, economists have different philosophical views on their discipline, which also provides fodder for honest disagreements. Implications for monetary policy The period from 1950 to the early 1980s provides two important lessons for managing the risks and uncertainties we face today. The early days of stabilization policy in the 1950s taught monetary policymakers not to try to compensate for likely temporary fluctuations in inflation.15 In fact, a response can do more harm than good, especially at a time when policy rates are much closer to the effective lower bound, even in times of prosperity. The main impact of monetary policy on inflation can occur after a delay of a year or more. If a central bank tightens monetary policy in response to factors that prove to be temporary, the main policy implications are likely to occur once the need is over. Poorly planned policy unnecessarily slows down the hiring of employees and other economic activities, causing inflation to fall lower than desired. Today, when the labor market is still in a considerable slump and the pandemic continues, such a mistake could be particularly damaging.
We know that prolonged periods of unemployment can cause lasting damage to workers and the productive capacity of the economy.16 3. We also assess whether salary increases over time are compatible with 2% inflation. Wage increases are essential to support the rise in living standards and are, of course, generally a welcome development. But if wage increases were to shift substantially and persistently above levels of productivity gains and inflation, firms would likely pass on these increases to customers, a process that could become a kind of “wage-price spiral” that has sometimes been observed in the past.10 Today, we see little sign of wage increases that could threaten excessive inflation (Figure 6). .