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Ask An Economist: How to lower inflation

August 13, 2022
GZERO Staff
Ask An Economist: How to Lower Inflation | GZERO World

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US inflation is now at a 40-year high. So, what are we going to do about it?

That depends on where you think the problem is coming from, American economist and University of Chicago professor Austan Goolsbee says on GZERO World with Ian Bremmer.

If inflation is being driven by too much stimulus, like some economists such as Larry Summers believe, Goolsbee believes the Federal Reserve is doing the right thing by raising interest rates to cool demand. But if inflation is mostly due to the war in Ukraine or supply chain disruptions, rate hikes might result in stagflation.

"I think if we get a couple [...] more months like the ones we just saw [...] they're gonna be consulting the ghost of Paul Volcker," Golsbee says, referring to the former Fed chair who in the early 1980s triggered two recessions by upping interest rates to double digits in order to tame inflation.

What about risking more unemployment, like Summers has suggested? That would mean "a lot of pain for millions of people."

Watch the GZERO World episode: Explaining inflation & what's next for the US economy
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