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Pinelopi Koujianou Goldberg
Says More…

This week in Say More, PS talks with Pinelopi Koujianou Goldberg, Professor of Economics at Yale University and a former World Bank Group chief economist.

Project Syndicate: Last July, you criticized the prevailing approach to tackling inflation in the United States, arguing that interest-rate hikes would be “insufficient to rein in inflation in the short run” and “likely [to] increase unemployment over time.” Since then, the US Federal Reserve has continued to hike rates, inflation has started to slow, and job growth has remained stronger than expected. Do recent data suggest that the Fed has done enough – or too much? How credible is its signal that the federal funds rate will exceed 5% by the end of this year?

Pinelopi Koujianou Goldberg: To be clear, I did not argue that interest-rate hikes are not useful in the effort to curb inflation. Rather, I pointed out that interest rates alone would be insufficient to bring price growth under control. Interest rates target demand, but in the latest bout of inflation, supply shortages have been equally important.

The good news in the United States today is that inflation has been reined in, and the labor market remains strong. But we are not out of the woods. The Fed recognizes this (and has repeatedly pointed it out). The central bank has been wise to pay close attention to the data, rather than pre-commit to a specific rate-hike trajectory. I have no issue with its actions.