EY-Parthenon Chief Economist Greg Daco assessed the Fed’s current economic policies.
According to Daco, the Fed will not raise interest rates because the root cause of inflation is not a surge in demand, but rather bottlenecks in the supply chain and a deepening “income squeeze” in the US economy.
According to Daco, the monetary policy currently in place in the economy is already at a restrictive level. The Chief Economist notes that inflation is fueled by supply pressures rather than high demand, drawing particular attention to energy prices and the pressure that Artificial Intelligence (AI) technologies are putting on the hardware sector. The strain on limited resources created by AI is pushing computer and electronic goods prices upwards.
Daco stated that the central bank is not adequately equipped to deal with such supply-side problems, and added the following:
“Raising interest rates by 25 or 50 basis points won’t move them very far. Therefore, even though inflation is double its main target of 2%, I expect the Fed to keep interest rates steady for now.”
While discussing the disconnect between politicians and elites and ordinary Americans experiencing the mainstream economy, Daco describes the current state of the economy as an “income squeeze.”
*This is not investment advice.
