US can slow inflation without unemployment spike: Fed study

US can slow inflation without unemployment spike: Fed study

The US and other industrialized countries may be able to bring inflation down without triggering the huge jumps in unemployment that economists may have predicted prior to the pandemic, according to new research from the Federal Reserve Bank of Chicago.

If correct, that might improve the chances for a soft landing of the US economy as the Fed raises interest rates to cool price pressures.

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The research examines the Phillips curve – a measure of the inverse relationship between inflation and unemployment – for 29 countries in the seven years before Covid-19 and the six quarters of pandemic recovery for which there is data, beginning in January 2021.

The authors found that in each country, including the US, the curve steepened, meaning that a decline in inflation is leading to a smaller increase in unemployment than it did before the public health crisis.

While the authors caution that their analysis is limited – there is only a year and a half’s worth of recovery data to examine – their conclusions bolster hopes that Fed rate hikes can curb high inflation without causing millions of Americans to lose their jobs.

And if the