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Is the Fed’s Slow Response Making Inflation Worse?


Published September 14, 2022

Traditional economic theory would have the Federal Reserve raise interest rates to lower inflation, which is likely to prompt a recession. However, John Cochrane explains, application of the fiscal theory of inflation may be able to reduce inflation without causing a recession. Cochrane also discusses whether inflation works as a stable or unstable system.

Discussion Questions:

  1. Why does the interest rate affect inflation?
  2. How does the fiscal theory of inflation differ from the monetary theory?

Additional Resources:

  • Read “Fiscal Histories,” by John Cochrane. Available here.
  • Listen to “What ‘Is’ Is: John Cochrane on Recessions, Inflation, the Fed, Debt and ‘Green Pork,’” with Bill Whalen and John Cochrane. Available here.
  • Read “Inflation and Monetary Policy,” via Policy Insights by PolicyEd. Available here.