Raghuram G. Rajan on inflation, financial risks, interest rates, and more

Raghuram G. Rajan says when the US Federal Reserve might start cutting rates, considers how to mitigate monetary-policy spillovers, and more. The PS Say More Newsletter | [View this message in a web browser]( [PS Say More]( This week in Say More, PS talks with Raghuram G. Rajan, former governor of the Reserve Bank of India, Professor of Finance at the University of Chicago Booth School of Business, and the author, most recently, of [Monetary Policy and Its Unintended Consequences](. To read the full interview – in which Rajan says when the US Federal Reserve might start cutting rates, considers how to mitigate monetary-policy spillovers, proposes measures to boost financial stability, and more – [click here](. Raghuram G. Rajan Says More... [Michael Spence]( Syndicate: Central banks’ far-reaching interventions after 2008 “left them poorly positioned for an environment where fiscal spending has ramped up and inflation, not disinflation, is the key problem,” you write in Monetary Policy and Its Unintended Consequences. In fact, when the recent inflationary spike materialized, you [observed]( in 2021, central bankers had become “more likely to make excuses for inflation, assuring the public that it will simply go away.” And yet, in the United States, those who argued that inflation was driven by temporary supply-side factors now claim that recent economic indicators, from prices to employment, have vindicated them. What is this narrative missing, and are the US Federal Reserve’s interest-rate projections for 2024 overly optimistic? Raghuram G. Rajan: The debate really is about how much inflation was caused by pandemic-induced supply-side disruptions (which were substantial) and how much was due to the increased demand induced by enormous fiscal stimulus and easy monetary policy. Monetary tightening began in March 2022. It is now early 2024, the extent of inflation overshoot has been substantial, and the labor market is still tight despite substantial immigration. I think it would be difficult for anyone to argue that... [Continue reading]( By the Way... PS: In your book, you present several possible changes that would lead central banks to adjust their behavior in ways that mitigate external spillovers. Are some more compelling than others, particularly in view of the “likely advent of central bank digital currencies and global stable coins”? Is there anything emerging economies can do unilaterally to protect themselves from these spillovers? RGR: In an ideal world, the industrialized countries – with relatively stable politics and strong institutions – would maintain disciplined monetary policy, recognizing that emerging markets have more volatile politics and less credible institutions. But in recent years, politics in industrialized countries has become increasingly fractured, driving more populist and extreme macroeconomic responses. Against this backdrop... [Continue reading]( [PS. Subscribe to PS Digital now and save 30% on your first year with us.]( [Antara Haldar on behavioral economics, development models, global governance, and more]( [Antara Haldar on behavioral economics, development models, global governance, and more]( Antara Haldar advocates a radical rethink of development, explains what went right at the AI Safety Summit, highlights the economics discipline’s shortcomings, and more. Haldar is Associate Professor of Empirical Legal Studies at the University of Cambridge. [Read now]( [PS. Subscribe now to receive your copy of PS Quarterly: The Year Ahead 2024.]( [Facebook]( [Twitter]( [LinkedIn]( Project Syndicate publishes and provides, on a not-for-profit basis, original commentary by the world's leading thinkers to more than 500 media outlets in over 150 countries. Receipt of this newsletter does not guarantee rights to re-publish any of its content. This newsletter is a service of [Project Syndicate](. [Change your newsletter preferences](. Follow us on [Facebook]( [Twitter]( and [YouTube](. © Project Syndicate, all rights reserved. [Unsubscribe from all newsletters](.