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Fed chief Powell does not understand what is causing inflation – econ professor

Johns Hopkins University professor Steve Hanke argued that Federal Reserve Chairman Jerome Powell does not fully grasp the causes of the current inflation and predicted that a high rate of price increases will likely carry over into 2024.

“The chairman does not understand, even at this point, what the causes of inflation are and were,” Hanke told CNBC.

The professor of applied economics said Powell “is still going on about supply-side glitches,” although he acknowledged that the Fed chief “has gotten off of his ‘temporary’ bit.”

Rather, Hanke contended that “inflation is always caused by excess growth in the money supply — turning the printing presses on,” an economic doctrine known as monetarism, most famously espoused by economist Milton Friedman.

In Hanke’s view, the substantial stimulus poured into the economy during the pandemic has fueled the current upswing in inflation. As such, he projected that higher prices will largely linger into the medium term.

“That’s why, by the way, we’ll continue to have inflation through 2023, going into, probably, 2024,” he said.

Hanke noted that his inflation model is pointing to price increases in the 6%-to-8% range for the end of 2022. He said the system suggests a 5% inflation rate at the end of 2023.

Hanke’s comments followed a massive selloff last Friday following remarks from Powell, who warned of “some pain” for the economy as the Fed continues to ratchet up interest rates. The S&P 500 fell more than 3% on Friday, with the futures pointing to further declines in Monday’s early action.

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