The recipe to fixing inflation depends on whether you see it as a demand or supply problem, economist and University of Chicago professor Austan Golsbee tells Ian Bremmer on GZERO World.
If inflation is being driven by too much stimulus, as economist Larry Summers believes, then the Federal Reserve is doing the right thing by raising interest rates to cool demand, Goolsbee explains. But if inflation is mostly due to the war in Ukraine or supply chain disruptions, rate hikes might result in stagflation.
US inflation is at a 40-year high and is therefore drives the perception among Americans that the economy is bad.
However, although real incomes have dropped due to high inflation, most Americans still have jobs, and many didn't take a big hit in their bank accounts — in part because the American Rescue Plan netted households an average of a $3,500 in tax cuts.
Note: This interview appeared as part of an episode of GZERO World with Ian Bremmer, "Explaining inflation & what's next for the US economy" on August 8, 2022.
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