Your Inflation Questions Answered – The New York Times

Other, more worried the commentators have drawn the similarities between now and the 1970s, when the Fed was slow to raise interest rates due to falling unemployment and rising prices – and inflation spiraling out of control. But many economists have argued that important difference separate that period from this one: Workers had more unions and might have had more bargaining power to push for higher wages at the time, and the Fed has been slow to react for years . This time, it was prepare to meet.

Why are price controls thought to be a very nasty response to inflation? – Jim Moher, San Leandro, California.

In the 1970s, President Richard Nixon tried wage and price controls – which put a limit on how wages could rise – to control inflation. The freezes worked for a while, but prices spiked when they were lifted, and they were appreciated by economists. That reputation has haunted them ever since. We asked the experts on price control in a recent articleand a vocal minority argue that the experience of the 1970s unjustly eclipsed the idea and that reopening the debate could be worthwhile.

“This is a hugely constrained topic,” said James K. Galbraith, an economist at the University of Texas. “It was completely mainstream from the start of World War II until the Reagan administration.”

If inflation is caused by supply chain problems, how will raising interest rates help? – Larry Harris, Ventura, Calif.

Kristin J. Forbes, an economist at the Massachusetts Institute of Technology, says a significant part of today’s inflation is linked to working supply chains, something monetary policy cannot fix. more.

But the real trade is occurs at a high level even between interruptions. Factories are producing, ships are in transit, and consumers are buying in a quick clip. It’s just that supply isn’t keeping up with that explosive demand. Higher interest rates can reduce pressure on demand, make it more expensive to buy a boat or car, cool the housing market and slow business investment.

“A good part of the problem in the supply chain, there is nothing you can do about it,” Ms. Forbes said. “But you can influence demand. And it is the combination of these two factors that determines inflation.” Your Inflation Questions Answered – The New York Times

Fry Electronics Team

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