The period of high inflation in the US has put heavy pressure on American households and businesses and forced the Federal Reserve to raise interest rates at a record pace
For his part, Mohamed El Erian, chief economic adviser at Allianz and former chief executive of PIMCO, seems concerned that inflation will reignite. Photo Reuters
The period of high inflation in the US, which put heavy pressure on American households and businesses and forced the Federal Reserve to raise interest rates at a record pace, is over. That's according to veteran economist Steve Hanek, but his optimism is not shared by other economists, including Nobel laureate Paul Krugman and investor Mohamed El-Erian.
“The story of inflation is over,” Hanke, who is a professor of applied economics at Johns Hopkins University, told CNBC. It comes ahead of official data released on Wednesday that showed US inflation fell to a two-year low of 3% in June.
Hahnke attributed the deceleration in inflation from 9.1% to 3% in the contraction of the money supply. And he predicted the US Federal Reserve would quickly reach its 2% inflation target if it continued monetary tightening.
“It's all about money,” said the economist, who served as an economic adviser to former President Ronald Reagan, dismissing the debate surrounding the non-monetary causes of inflation. At the same time, he dismissed concerns that the Fed faces an uphill and protracted battle to tame inflation. In his view, inflation is not persistent.
But Nobel laureate economist Paul Krugman tweeted that the June inflation figure of 3% could be affected by seasonal factors and could be revised upwards later. As he said, the past makes him worry. Even if inflation eases, interest rates may need to remain high to prevent a price resurgence, Krugman adds.
“I don't think the Fed was wrong to raise interest rates. It may even need to keep them high, given the economy's amazing resilience,” he tweeted. “But there are now very good reasons for him to pause and take notice.” Moreover, Mohamed El Erian, Allianz's chief economic adviser and former PIMCO CEO, appears to be concerned that inflation will reignite, forcing the Fed to continue raising interest rates and eventually trigger a recession.
< p>As he tweeted, the mood has shifted sharply in recent months, from hopes of a “soft landing” where the Fed would bring inflation under control without hurting the economy to fears of a “hard landing” where the Fed's battle would cause a recession, and from there, enthusiasm for a “no landing” where the economy would grow without interruption and avoid inflation. “I suspect that whether the climate will remain this way is more a function of the dynamics of inflation, and therefore what the Federal Reserve is doing, than the dynamics of economic growth itself,” he noted.