Unemployment
“You may very quickly get the impression that everything is going as it should, but it’s not,” says the macroeconomist. The US is currently heading for 4.6% unemployment. According to Mujagic, calculations by the central bank of the US city of Cleveland show that unemployment must rise to 7.4% to reach the desired 2% inflation level.
“This is a doubling of the current unemployment rate, and doubling it without a recession is difficult,” Mujagic says. “What the calculations say is that if unemployment is to remain around 4.5 percent, any hope that inflation will fall to 2 percent must be disappointed.”
Difficult situation
According to the macroeconomist, the Fed is in a more difficult situation than before. The Fed is now facing an environment it has never faced before. Mainly because of high debts, it is not known how households, companies and governments will react to interest rates that have been pushed too far,’ explains Mujagic.
“Inflation is an enemy we already know. ‘
The Fed must therefore make choices, according to the macroeconomist. “But the Fed needs to realize that it can’t raise interest rates too much and therefore hope it doesn’t have a detrimental effect on the economy,” warns Mujagic. The macroeconomist thinks the Fed will choose to drive up inflation because it is “an enemy we know.”
Europe
In Europe, the ECB faces the same choice to some extent. If I listen to what the ECB is saying about the future, we will go to 3.5% inflation. So I think there’s a good chance that the decade we’ve entered is a kind of inflationary decade,” Mujagic said. According to the macroeconomist, these are not scary percentages, but an inflation rate between 3 and 5 percent “It’s double what we’ve been used to for the past 30 years.”
Mujagic doesn’t think the problem can be solved by raising wages: ‘Every company will face higher wage costs and then pass them on. Then it will be even higher.’ According to the macroeconomist, the cure for inflation lies elsewhere, namely in making it more expensive to borrow money. “Much more expensive than what the Fed and the ECB want now.