Recently, rising prices in the American economy have put households and businesses in a difficult position, prompting the Federal Reserve to raise interest rates rapidly. While rapidly rising interest rates along with rising inflation fueled the fears of a brutal recession, the bankruptcy of Silicon Valley Bank raised concerns about a new financial crisis in the USA. However, according to official data, inflation fell to 3 percent in June, the lowest level in two years, signaling that the impact of the Fed’s rate hike decisions on the economy was felt.
Despite falling inflation, economists do not seem to have received the same signals from the published data. Core inflation, which remained high after the latest inflation data, caused a disagreement among world-renowned economists.
Steve Hanke, Professor of Applied Economics at Johns Hopkins University, stated that the inflation story is now over, and attributed the decline to the declining money supply. Expressing that if the Fed, led by Powell, continues to increase interest rates, he can reach the target inflation rate of 2 percent, Hanke continued his monetarist approach and opposed the Classical Economics school, saying that everything has to do with money. According to Hanke, it is pointless to focus on non-monetary reasons to understand inflation and it is all about money, he said.
On the other hand, Nobel Prize-winning economist Paul Krugman took a more cautious approach. Krugman said that the 3 percent inflation rate in June could reflect seasonal adjustments and be revised upwards.
Mohamed El-Erian, Allianz’s chief economic adviser and former PIMCO CEO, said that despite concerns that the Fed’s struggle is driving the economy into recession, the economy has grown uninterruptedly. stressed that inflation. El-Erian stated that the soft landing scenario is a result of inflation dynamics and the Fed’s policies, and that the general level of prices has the potential to rise again in the future.
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