OPINION: It may take a lot of demand reduction and really undesirable economic loss before inflation is reduced. Fortunately, we could adopt these five policies to reduce the pain caused by rate hikes, economist Marc Jarsulic writes.
In response to continuing core inflation, the Federal Reserve raised the federal funds rate by 75 basis points during this week’s meeting of the Federal Open Market Committee. This will raise the cost of credit throughout the economy, reduce aggregate demand, and lead to declines in output and employment.
More on the Fed’s plan for pain: Fed predicts big slowdown in economy and rising unemployment as it battles inflation More vigorous antitrust enforcement also could make a difference. Evidence from this recession and recovery demonstrates that general supply shocks create novel opportunities for incumbent firms exercise market power and raise margins, adding to price increases. Effective antitrust would increase entry of new competitors increase effective supply, and reduce the market power of incumbent firms.
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