The Federal Reserve is unlikely to be able to bring down inflation without having to raise interest rates considerably higher, causing a recession, according to a research paper with Former Fed Governor Frederic Mishkin on it.
“We find no instance in which a central-[bank]induced disinflation occurred without a recession,” said the paper, co-authored by economists Stephen Cecchetti, Michael Feroli, Peter Hooper and Kermit Schoenholtz.
“Simulations of our baseline model suggest that the Fed will need to tighten policy significantly further to achieve its inflation objective by the end of 2025,” the researchers said.
“Even assuming stable inflation expectations, our analysis casts doubt on the ability of the Fed to engineer a soft landing in which inflation returns to the 2 percent target by the end of 2025 without a mild recession,” they added.
“Unlike in the late 1960s and 1970s, the Federal Reserve is addressing the outbreak in inflation promptly and forcefully to maintain that credibility and to preserve the ‘well anchored’ property of long-term inflation expectations,” Jefferson said in reply.
