Paul Krugman: "Biden's Stimulus Plan Will Not Cause Severe Inflation"

Paul Krugman, Professor at City University of New York [Image source= EPA Yonhap News]

[Asia Economy Reporter Byunghee Park] Paul Krugman, a professor at the City University of New York and the 2008 Nobel Laureate in Economics, stated that President Joe Biden's $1.9 trillion stimulus package will not cause uncontrollable inflation like in the 1970s.

According to Bloomberg on the 18th (local time), Professor Krugman said in an interview with Bloomberg TV that the central bank, the Federal Reserve (Fed), has the tools to deal with inflationary pressures if necessary. He also added that the Fed will not pursue irresponsible monetary policies like it did in the 1970s.

From the 1970s to the early 1980s, the United States experienced severe inflation with consumer price increases reaching double digits.

Professor Krugman pointed out that the causes of inflation at that time included two oil shocks, the Lyndon Johnson administration's excessively expansionary fiscal policies, and the irresponsible monetary policies operated by Fed Chairman Arthur Burns.

Krugman said the worst-case scenario that Biden's stimulus law could cause is a temporary price surge similar to that seen in the early stages of the Korean War. He predicted that while the $1.9 trillion stimulus will provide a significant boost to the economy, it will not greatly stimulate prices.

Professor Krugman emphasized that Fed officials should not be surprised by the bond market's reaction and respond with policy changes. He noted that sharp rises in bond yields affecting the stock market are common and urged not to react too sensitively to bond yield fluctuations.

Krugman also said that thanks to the stimulus law, the Fed's need to maintain an extended expansionary monetary policy strongly and for a long time will be reduced. Furthermore, he mentioned that although the Fed's tightening in 1994 shocked the financial markets, nothing truly terrible happened, and Fed officials should keep this in mind.

This content was produced with the assistance of AI translation services.