Former Federal Reserve Board Chair Ben Bernanke speaks during a discussion on “Perspectives on Monetary Policy” during the Thomas Laubach Research Conference at the Federal Reserve Board building in Washington, DC, May 19, 2023.
Saul Loeb | AFP | Getty Images
WASHINGTON — Former Federal Reserve Chair Ben Bernanke, who guided the central bank and the U.S. economy through the Great Recession, thinks central bankers still have work to do to bring down inflation.
That work, he and economist Olivier Blanchard argue in an academic paper released Tuesday, will entail slowing down what has been a phenomenally resilient labor market.
The duo does not present specific prescriptions for how much unemployment needs to rise, but they do suggest it’s possible for the current Fed to orchestrate its way out of this predicament without severely tanking the U.S. economy.
“Looking forward, with labor market slack still below sustainable levels and inflation expectations modestly higher, we conclude that the Fed is unlikely to be able to avoid slowing the economy to return inflation to target,” Bernanke and Blanchard wrote in the paper.
Since leaving the Fed in 2014, Bernanke has been a distinguished senior fellow at the Brookings Institution. Blanchard is a senior fellow at the Peterson Institute for International Economics.
Their paper notes that inflation has evolved since ballooning to a 40-year high in the summer of 2022. Initially, prices jumped as consumers used stimulus from Congress and the central bank to shift spending from services to goods, creating logjams in supplies and juicing inflation.
However, they note the new phase is now being pushed by a rise in wages trying to catch up to the surge in prices. The good news is that such shocks are generally controllable, but they said the Fed needs to keep trying to address the labor situation in which the unemployment rate is at 3.4% and there are still about 1.6 open jobs for every available worker.
“The portion of inflation…
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