Bernanke Contributes to NYT: "This Inflation Will Not Lead to 1970s-Style Wage-Price Spiral"

[Asia Economy Reporter Naju-seok] Former U.S. Federal Reserve (Fed) Chairman Ben Bernanke predicted that the United States today is unlikely to head toward the Great Inflation of the 1970s.

On the 14th, Bernanke published an op-ed in The New York Times (NYT) titled "Inflation Isn’t Going to Bring Back the 1970s."

After questioning whether the inflation of the 1970s would reoccur, he answered, "That is very unlikely." Bernanke acknowledged that there are similarities, such as government spending related to the Vietnam War and the stimulus spending to counter the COVID-19-induced recession, as well as global energy and food prices worsening inflation.

However, he also saw differences. Above all, in the 1970s, there was strong political resistance to interest rate hikes because they triggered economic slowdowns and unemployment, but currently, both the White House and Congress support raising interest rates to curb inflation. Accordingly, the Fed has the independence to set interest rates based on economic indicators and long-term economic benefits rather than short-term political considerations.

Bernanke also noted that the Fed has learned that even if inflation stems from supply-side factors, raising interest rates can suppress demand and thereby curb inflation.

Nonetheless, despite a series of environmental changes, he believes the Fed’s task is not easy. He stated that how much monetary policy tightens depends on how quickly supply-side issues are resolved, whether the Fed’s tightening leads to a reduction in total spending, and whether the Fed can maintain its credibility as an inflation fighter while inflation subsides.

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