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Expect inflation to remain elevated for the near future
Economists believe that inflation will remain elevated for the near future
What is going on with inflation? The U.S. government recently reported an annual inflation rate of 7%.
Basically, what is happening is that demand is outstripping supply for many goods, as the Federal Reserve and the federal government have had very loose monetary and fiscal policy to prop up the economy, but the supply chain crisis has made it harder for some goods to come to market.
Is high inflation going to continue? The OECD forecasts that inflation in the U.S. will stay elevated through the end of 2023. It forecasts a peak of 6.6% in the first quarter of 2022, and then a steady decline, but inflation will stay above 2% through the end of 2023. The IMF forecasts inflation to be 3.5% in 2022 and 2.7% in 2023. Economists surveyed by the Wall Street Journal believe inflation will remain elevated through 2023.
Jason Furman, a former top economic adviser to President Obama, said at the ASSA Meeting earlier this month that he expects inflation to remain “very elevated” in 2022, since anything the Federal Reserve does to tame inflation will have a lag of about a year.
The Federal Reserve is now taking inflation more seriously. Lael Brainard, a Federal Reserve governor who has been nominated to be the Fed’s No. 2 official, recently said that reducing inflation is now the Fed’s “most important task.” There is a risk that the Fed’s future actions to curb inflation could trigger a recession, as James Pethokoukis of the American Enterprise Institute noted in his newsletter.
The bottom line is that if you want your purchasing power to stay the same, you really should ask for a raise at work if you can. And if you want a new job, this is a good time to look for a job, since the good job market may not last forever if the Fed tightens monetary policy too much in the next year or two.