Chicago Booth’s Anil Kashyap forecasts prolonged inflation at higher level

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Anil Kashyap, an Economics and Finance Professor at Chicago’s Booth School of Business (Chicago Booth), alerted that inflation might persist at a higher level than anticipated, possibly remaining around 3% instead of receding. Additionally, he addressed the difficulties confronting the European and Japanese economies, underlining the crucial role of central bank policies in mitigating risks.

In an interview with CNBC-TV18, Kashyap discussed in detail the global macro economy outlook, US inflation and where it is headed, adding that he expects the US Federal Reserve to wait until September for the first rate cut, citing political considerations.

Speaking further about US inflation, he stated that there are numerous signs suggesting that inflation will persist stubbornly. Therefore, he doesn’t anticipate it to simply decline back to 2% without any significant impact. It appears that inflation is hovering around 3%, which wouldn’t be historically unexpected. The notion that it would swiftly return without a period of economic slowdown is doubtful. Hence, inflation might be higher than what the market initially believed, and even presently, there could be some optimism in the markets.

When questioned about rate cut expectation, Kashyap said, “They will cut rates in September, pretty close to the election, I think they would have to have clear evidence that inflation had fallen at that point to do that. Otherwise, they will probably just wait for another meeting or so.”

Also Read | US Federal Reserve holds steady on interest rates, signals potential future cuts

Talking about global economies, he said that if Donald Trump wins the US Presidential election, he will quickly cut a deal with Russia to try to get rid of that problem as far as he sees it and that could be very chaotic for Europe. The Middle East looked like at one point they were on the verge of a huge fight between Israel and Iran, which would also be very disruptive to them as an energy price shock. So, there’s a lot of downside risk in the global economy.

“Japan is a place where there is some good news, I mean, they have managed to end their yield curve control without having the markets throw a tantrum. They will begin starting to normalise, we will see how they are able to do that and whether they can tighten a little bit. So, the direction of what central banks are going to do is more divergent than it would usually be,” Kashyap added.

Also Read | The latest signal from US Fed is soothing for the markets

For the entire interview, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow