© Reuters Fed ‘Shock Therapy’ Not Needed to Tame Hot Economy, Krugman Says
(Bloomberg) — Nobel laureate economist Paul Krugman said that while it’s time for the Federal Reserve to start raising interest rates, there’s no crisis with regard to inflation and indicated that policy makers will be able to be measured in their tightening.
“This is clearly a very hot economy and it’s the Fed’s job to cool it off a bit,” Krugman said Friday on “Balance of Power” with David Westin on Bloomberg Television. As for what’s needed, he said, “Definitely not shock therapy.”
Krugman, now at the City University of New York, said that there’s no need to panic about current rates of inflation, with no sign that it’s become entrenched in the economy.
The Fed will need to be raising rates “consistently” until the underlying overheating in the economy that’s stoking price pressures dissipates, Krugman said.
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