A leading US economist says America is about to go through a few painful months.  This is bad news for Australia

A leading US economist says America is about to go through a few painful months. This is bad news for Australia

One of the leading economists in the United States says the world’s largest economy is still in the grip of an inflationary crisis that is likely to persist for the foreseeable future.

Loretta Mester is the president of the Federal Reserve Bank of Cleveland, which means she is currently one of 12 people who determine the official interest rate in America.

In an exclusive interview with ABC, Ms. Mester issued a warning to Americans struggling under the pressure of sharp price increases.

“I don’t have enough evidence right now to even conclude that inflation has peaked in the United States,” he said.

This puts it at odds with US President Joe Biden’s claims that inflation “could, could be – I’m not exaggerating – could start to decline.”

Mr. Biden has come under tremendous political pressure to curb price increases, which have reached their highest levels for many decades this year.

His government welcomed the news that the US consumer price index (CPI) hit 8.5% in July, which, while still high, was down from its 40-year high on the 9th. 1% in June.

But some economists have been cautious about the data, especially given recent examples of slowing inflation and then accelerating in the following months.

Another positive point in recent months has been the decline in gasoline prices in the United States.

A blue and white sign at a Mobil gas station shows prices over $ 6.00
Average gas prices peaked at over $ 5 per gallon in the United States in mid-June 2022.(David Swanson)

But Ms. Mester said this happened during the height of the Northern Hemisphere summer and she doesn’t believe the trend will continue to the downside.

“There is good reason to think that with the winter, those prices could rise,” he said.

As temperatures drop in the global north, countries will desperately vie for sources of gas and oil to heat homes and power companies.

Such sources will be severely limited in the West due to sanctions on Russia in response to President Vladimir Putin’s war in Ukraine.

“The Fed will have to do much more”

Ms. Mester is one of the most knowledgeable people about the country’s economic status and one of the most powerful in defining its economic direction.

A woman with cut red hair looks to the side
Loretta Mester believes Fed rates are likely to be above 4% by early next year. (Reuters: Jim Urquhart)

He is a member of the Federal Open Market Committee (FOMC) and meets with his fellow members eight times a year.

They review economic and financial conditions and assess the risks to its long-term goals of price stability and sustainable economic growth.

So far this year they have raised interest rates at a mouth-watering rate, from the actual zero in March to more than 2.25% today.

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