Don’t Bully the Fed, Warns Economist

July 19, 2022

Contact: KL Conner, 202-281-4159

Washington — Anticipating demands that the Federal Reserve pursue aggressive rate hikes, CEPR economist and co-founder Dean Baker argues that the Fed should not allow itself to be bullied into abandoning its dual mandate of addressing inflation while maintaining the highest possible level of employment.

In this analysis, Baker argues that:

Inflation is, in part, driven by food and energy, which have already seen price declines in the last couple of months.
Supply chain issues that caused prices of many items to soar in the wake of the pandemic recovery have now largely been resolved.
Wage growth has fallen sharply since the start of the year. Seeing this sharp slowing, even when the unemployment rate is near its half-century low, indicates that the current post-pandemic situation does not fit the standard models.
The Fed’s previous rate hikes have already taken the air out of an incipient housing bubble.

“The Fed should not pursue a policy that needlessly throws millions of people out of work,” writes Baker.