Does unemployment really have to rise to bring down inflation?

Rarely in america’s past has an inflation rate of 8.5% felt so good. In July, for the first time since May 2020, consumer prices did not rise from one month to the next—though the year-on-year rate of increase remained high—thanks to a sharp drop in energy prices. But officials at the Federal Reserve are not celebrating. From their perspective the inflation problem remains unresolved as long as rapid growth in workers’ wages continues to power a spending boom. While that remains the case, a drop in the price of any one thing, such as oil, only leaves more room for spending on another. The Fed thus needs to weaken workers’ bargaining positions by introducing a bit of slack into the labour market.

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Yet what counts as slack is very much up for debate. In its broad outlines, the concept is clear enough….

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This article was written by and originally published on www.economist.com