2023-07-14 10:32:51
Fed and curb inflation
The United States no longer suffers from the dilemma of inflation, according to veteran economist Steve Hanke, professor of applied economics at Johns Hopkin University.
Hanke said: I think inflation is a historical story. One of the reasons for this is that the money supply is shrinking year-on-year by 4 percent in the United States.
“We haven’t seen that since 1938,” Hanke was quoted as saying by CNBC, adding, “Changes in the money supply cause changes in the price index and inflation.”
Money supply is the purchasing power of individuals, and it is indicated by the availability of money, meaning that liquid assets in the economic sector depend on the exchange of services and goods, and an increase in the money supply leads to the emergence of economic inflation, while a decrease in its supply results in the emergence of unemployment and deflation. , and idle production capacity.
The money supply is defined as the money in circulation in addition to the money in bank accounts, and the money supply does not include any other form of financial wealth, such as stocks or financial investments, nor does it include credit instruments, such as mortgages and financial loans. Another definition of money supply is that it is the total balance of currencies and liquid financial instruments that are circulated in the economy of a particular country.
The US inflation rate for June slowed less than expected at 3 percent Wednesday, the smallest year-on-year increase in two years.
The core CPI, which excludes volatile food and energy prices, rose 4.8 percent year-on-year, and 0.2 percent month-on-month.
The producer price index (which measures inflation in factories) in the United States, a measure of what wholesalers pay for goods, rose less than expected, by 0.1% on a basis in June.
The core PPI, which excludes food and energy prices, rose 0.1 percent, also less than expected.
The latest data may give the Federal Reserve some wiggle room at its next meetings this year to consider the course of interest rate policy.
Traders are 94.4 percent likely to raise interest rates by 25 basis points to the range of 5.25-5.5 percent at the next meeting on July 26, according to CME FedWatch.
“When inflation was oscillating, the producer price index rose first, then the consumer price index rose, but the core inflation index kept dropping gradually like a snail,” says Hanke.
And he went on, saying: At the present time, things have turned around and the producer price index is falling as fast as a stone, and even faster the consumer price index numbers are falling, but the core inflation index is lagging behind, explaining, explaining that we will see all of that decrease as long as they continue in quantitative tightening.
US central bank policymakers tend to look more at core inflation, which is still well above the Fed’s annual target of 2%.
But Hankey noted that if the Fed “continues to do what it’s doing (i.e. raise rates)”, it could get to the “2% range very quickly”.
“Forget all the propaganda we hear — that the Fed chairman has a tough problem, that this is going to be a long battle, inflation is ungovernable and so forth,” says Johns Hopkins economics professor Steve Hanke.
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