- Paul Krugman is a poor read on inflation, unemployment, and the health of the US economy.
- The Nobel Prize-winning economist blamed fluctuating price shocks and erroneous, delayed data.
- Krugman said the Fed will continue to raise rates until inflation is certain to recede.
Nobel Prize-winning economist Paul Krugman doesn’t know what to make of the current US economy.
“I don’t have a clear picture of what is happening to inflation right now,” he said in a recent report. New York Times columndescribing the situation as “vague” and “really confusing”.
Inflation hit 9.1% last summer and the Federal Reserve hiked interest rates from near zero to 4.5% to keep inflation in check.
Higher interest rates increase borrowing costs and encourage savings over spending, investment and employment. This usually cools the economy and can even cause a recession. Recent data Inflation remains high and the labor market remains healthy, suggesting growth has not stalled yet.
In his column, Krugman details several reasons why current inflation is difficult to measure. He pointed to ongoing shocks to the economy that caused violent fluctuations in the prices of used cars and other goods and services.
He notes that official rent measures lag market rates by more than a year, and underlying inflation measures may be biased or leave out too many items to be useful. Did.
An increasing number of companies have declined to participate in government investigations, and government agencies have made significant adjustments to historical data such as rising consumer prices and workers’ wages, clouding the picture. he added.
“Right now, official indicators on job openings point to a very hot labor market, but private sector indicators point to a significant cooling,” he said, making it difficult to read the health of the economy right now. Here are some examples of why.
Still, it’s fair to say that inflation has slowed since early last year, still above the Fed’s 2% target, Krugman said. He added that despite the US central bank’s interest rate hikes, the US economy remains strong, with inflation taking hold and unemployment soaring showing no signs of overcoming.
“Given this situation, it seems unlikely that the Fed can avoid continuing to raise rates until it is more or less certain that inflation is under control.
Krugman added that he still has no reason to stress. “The Fed is creeping forward through a dense data fog, suggesting that dramatic moves in either direction should be avoided.
The Nobel laureate underscored his deep uncertainty over the state of the US economy on Sunday TweetHe shared a chart showing that private sector housing starts have plummeted over the past year, while housing construction has been steadily increasing since early 2021.
“Most puzzling chart in economics right now,” he tweeted.
“If you look at housing starts, you’d think there’s a big slowdown going on,” he continued. “But employment has not declined at all.”
Krugman said a sharp drop in new home construction usually suggests the economy is slowing or contracting, but an overheating job market suggests growth hasn’t suffered yet. It was emphasized that the
“Honestly, I’m not quite sure what’s going on, but this is definitely a big part of the mystery,” he added.