US inflation is fueled by intense domestic demand, economist says

In an interview with CNN , this Wednesday (6), former World Bank vice president Otaviano Canuto commented on inflation in the United States. According to the economist, the income transfer packages generated an overheating in the economy and, consequently, in the country’s demand.

For the economist, part of the current inflation was generated by the increase in domestic demand.

“One can criticize the excessive agency of his second transfer package [Biden] last year, which overheated the US economy to such an extent that today, the San Francisco Fed estimates that two-thirds of inflation cannot be explained by the energy price shock and the food price shock, but has the to do with the degree of overheated that the American economy found itself until recently”.

Canuto says that, in such conditions, “it is necessary to tighten the brakes on aggregate demand”.

The Federal Reserve (Fed, US Central Bank) tries to contain the fastest rise in inflation in 40 years. In the minutes of the June 14 and 15 monetary policy meeting, released this Wednesday, the authority shows that it remains firm in its intention to ease the rise in prices, even if the cost of doing so is to further slow the US economy.

Thus, a hike in the basic interest rate of 0.50 percentage point or 0.75 pp, as well as the increase announced at the last meeting, is still on the table.

Regarding expectations of further rate hikes, Canuto said that the objective of containing inflation is a priority for the Fed, since “the consequences of not doing so, if inflation changes to a high regime, will be even worse” , said.

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