If people really have begun to believe that prices are going to just keep on rising, then defeating high inflation could require dramatic actions by the Fed to puncture those expectations, Waller said in remarks prepared for an academic conference at the San Francisco Fed.
Dramatic Fed rate hikes could slow the economy suddenly and lead to large job losses.
But if what’s driving higher prices is a sudden rise in the frequency at which businesses reset their prices — a theory for which Waller said there is some evidence — then “inflation can be brought down quickly with relatively little pain in terms of higher unemployment,” he said. “Recent data are consistent with this story.”
More data will be needed to figure out “which story is right,” he said.
Source: Economy - investing.com
