Inflation Is a Demand-Side Problem: Scholar

Don Ma
By Don Ma
March 7, 2023NTD Businessshare

The Federal Reserve will likely keep raising interest rates higher than officials had first thought, Chair Jerome Powell told lawmakers in Washington.

In his first of two appearances on Capitol Hill on Tuesday, Powell cautioned the Senate Banking Committee that the latest string of better-than-expected economic data and a modest reversal in the disinflation trend could enable the U.S. central bank to tighten monetary policy faster.

NTD spoke with William Luther, director of the American Institute for Economic Research’s Sound Money Project and an associate professor of economics at Florida Atlantic University.

Luther says he was surprised to hear some Senate Democrats attributing inflation to supply-side factors because, he said, “We see that those supply constraints have eased up. Have we seen prices returned to trend? No, to the contrary, prices have grown even more rapidly.”

He believes the reason prices are high today is because of demand-side factors. “In particular, we had a big boost of fiscal spending, which was accommodated by the Federal Reserve that caused nominal spending to surge and prices have risen as a consequence.”

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