Nobel Laureate Economist Stiglitz: Rate Hikes That Are Too Steep May Worsen Inflation

Central banks that hike borrowing prices too aggressively to tame supply-driven inflation danger exacerbating value beneficial properties, in line with Nobel laureate economist Joseph Stiglitz.

As exercise restarts following pandemic lockdowns and nations like China battle to revive normality, the worldwide financial system is enduring one thing “we’ve by no means performed earlier than,” the Columbia College professor stated in an interview in Lindau, Germany.

“Elevating rates of interest doesn’t clear up the supply-side issues,” he stated. “It might probably even make it worse, as a result of what we wish to do proper now’s make investments extra within the supply-side bottlenecks, however elevating rates of interest makes it harder to make these investments.”

Coverage makers are relying on tighter financial coverage taming the quickest inflation in a era and conserving expectations in regards to the future trajectory of costs in test. Stiglitz isn’t so positive.

With the US financial system and others displaying clear indicators of “market energy” — the place firms can increase costs with out dropping enterprise — normal financial fashions recommend fee hikes can result in much more inflation, he stated.

He cited the US housing market, the place there’s proof that landlords go larger curiosity prices on to tenants via rents, stoking value progress.

“How will elevating rates of interest result in extra meals, extra power, and clear up the chip provide downside? In no way,” Stiglitz stated. “They gained’t go on the fundamental supply of the issue — and the true danger is that can make issues worse.”