Fighting inflation likely to be ‘painful,’ U.S. Fed official says
The Fed generally fights inflation by raising interest rates to cool borrowing and spending. Historically, such rate hikes have often slowed growth and have even led to recessions.
Federal Reserve official Austan Goolsbee warned on Monday that battling persistent high inflation may cause significant economic hardship, potentially leading to higher unemployment rates. The central bank, currently grappling with a series of ongoing supply shocks such as oil price hikes from the Iran conflict and trade tariffs, is compelled to raise borrowing costs to restore inflation to its 2% target, Goolsbee explained in a speech delivered in London.
The only viable option to bring inflation under control, as per Goolsbee, is by increasing interest rates and narrowing the gap between supply and demand – a measure that will inevitably result in employment levels falling below expectations. This painful trade-off between achieving low inflation and maintaining maximum employment levels is a reality that the Fed must confront, Goolsbee emphasized in a subsequent interview with reporters.
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