Don’t expect inflation rates to drop anytime soon

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BRYAN, Texas (KBTX) — Inflation in the United States rose 8.5% in March, the biggest increase since 1981 according to the Labor Department’s consumer price index. Dennis Jansen, director of the Private Enterprise Research Center and Jeff Montgomery Professor of Economics at Texas A&M University, joined First News at Four to discuss what people can expect from inflation in the near future.

Don’t expect things to get better too soon. According to Jansen, “even if we are at the top, [inflation] won’t go away quickly.

He believes the inflation rate will be well above the Federal Reserve’s 2% target for the rest of the year.

Regarding the role of government, the Federal Reserve System is in charge of price stability and market stability. They’re slowly raising the interest rate on reserves, but they’re doing it at what Jansen calls a “rather glacial pace.” The Fed raised interest rates on reserves by a quarter percent in March, and they’re talking about raising them by a half percent at the next meeting in early May.

Jansen thinks the Fed should have “started raising interest rates and tapering its asset purchase program” last summer when the inflation rate was starting to rise, but they thought inflation would be temporary and will disappear on its own.

Now the Fed is aiming for a “soft landing,” where it can gradually lower the inflation rate without pushing the unemployment rate higher. Jansen isn’t sure they’ll fulfill their hopes of a soft landing. Some commentators have called what the Fed is looking for “perfect disinflation”.

“I think the actions they take will likely cause the unemployment rate to rise and the question is how much,” Jansen explained.

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