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Journal Article
Pace of GDP Growth, Disinflation Key in U.S. Economic Outlook
The U.S. economy began the year on solid footing, but forecasts of below-trend GDP growth and uncertainty about the pace of disinflation pose risks in 2023.
Journal Article
Historical Disinflation Episodes: Which Falls First, Goods or Services?
What does it take to bring inflation back down to target? Historically, goods inflation slows first, followed by a longer period in which services inflation slows.
Speech
The First Steps toward Disinflation
Inflation in the U.S. is comparable to 1970s levels, and U.S. inflation expectations could become unmoored without credible Fed action, St. Louis Fed President Jim Bullard said during a presentation in Barcelona, Spain. He noted that the Fed has reacted by taking important first steps to return inflation to the 2% target and that U.S. market interest rates have increased substantially, partially in response to promised Fed action.
Speech
Disinflation: Progress and Prospects
St. Louis Fed President Jim Bullard presented “Disinflation: Progress and Prospects” at a meeting of the Greater Jackson Chamber in Tennessee.Bullard discussed the improved U.S. real GDP growth in the second half of 2022, the strong labor market performance, and the start of the disinflationary process.He also noted that front-loaded Fed policy has helped keep market-based measures of inflation expectations relatively low. Continued policy rate increases can help lock in a disinflationary trend this year, even with ongoing growth and strong labor markets, he said.
Report
Zombie Credit and (Dis-)Inflation: Evidence from Europe
We show that “zombie credit”—cheap credit to impaired firms—has a disinflationary effect. By helping distressed firms to stay afloat, such credit creates excess production capacity, thereby putting downward pressure on product prices. Granular European data on inflation, firms, and banks confirm this mechanism. Industry-country pairs affected by a rise of zombie credit show lower firm entry and exit rates, markups, and product prices, as well as a misallocation of capital and labor, which results in lower productivity, investment, and value added. Without a rise in zombie credit, ...
The Costless Disinflation of 2022-24
An analysis examines changes in U.S. unemployment amid recent disinflation, comparing the episode with historical patterns and other countries’ experiences.
Speech
Reflections on the Disinflationary Methods of Poincaré and Thatcher
St. Louis Fed President Jim Bullard talked about the academic literature related to “credible” versus “incredible” disinflation and how that may apply to current conditions. He spoke before the Money Marketeers of New York University.Current inflation in the U.S. and the euro area (EA) is near 1970s levels, Bullard said. The disinflation under former Fed Chair Paul Volcker was costly, he added, but it was not credible initially—Volcker had to earn credibility.Nobel laureate and economist Thomas Sargent initiated a literature on costless disinflation (“soft landings”) that ...
Speech
Credible and Incredible Disinflations
St. Louis Fed President Jim Bullard talked about “credible” versus “incredible” disinflations during a panel discussion at “The Credibility of Government Policies: Conference in Honor of Guillermo Calvo” at Columbia University.He posed the question of whether the Fed will be able to return inflation to 2% relatively easily and quickly or whether a substantial recession will occur, as was the case under former Fed Chair Paul Volcker. Bullard noted that the Volcker disinflation was costly but “incredible”—initially, few believed that the Fed was serious about reducing ...
Journal Article
The Last Mile
Headline inflation in the euro area declined rapidly to 2.9% in October 2023 from its peak of 10.6% one year earlier. The bulk of this large drop reflected the substantial decline in the contributions from energy and food inflation. Once these base effects reverse, continued disinflation relies critically on monetary policy succeeding in reducing underlying inflation in a steady and timely manner. The last mile is about this change in the disinflation process. Large uncertainty around the appropriate calibration and effective transmission of monetary policy, together with the risk of new ...
Journal Article
Is the Last Mile More Arduous?
US inflation surged starting in spring 2021, with Consumer Price Index (CPI) inflation reaching a 40-year high of 9 percent in mid-2022. Together with improving supply-chain conditions, policy tightening by the Fed decreased inflation to within 1 to 2 percentage points of its 2 percent target by late 2023 without a significant increase in unemployment. However, concerns have been raised that the last mile of disinflation to reduce inflation consistently to its 2 percent target will be more arduous than the previous miles. Close examination of such concerns indicates that they do not receive ...