The Fed raising interest rates won't fix inflation and the US needs a different kind of intervention, says Nobel-winning economist Joseph Stiglitz

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The Fed raising interest rates won't fix inflation and the US needs a different kind of intervention, says Nobel-winning economist Joseph Stiglitz
Joseph Stiglitz during of Laurea Honoris Causa Joseph Stiglitz on the Festival della Tecnologia on November 07, 2019 in Turin, ItalyStefano Guidi/Getty Images for Polito di Torino
  • The Federal Reserve won't be able to solve the problem of high inflation by raising interest rates, famed economist Joseph Stiglitz told Bloomberg on Monday.
  • The world's largest economy could use supply-side intervention, the Nobel Prize winner said.
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US inflation is burning at its fastest rates in decades but the Federal Reserve will not fix the issue by raising interest rates, Nobel Prize-winning economist Joseph Stiglitz told Bloomberg on Monday.

"Raising interest rates is not going to solve the problem of inflation," he said on Bloomberg Television in an interview in Davos, Switzerland where he was attending the World Economic Forum's annual meeting.

"It's not going to create more food. It's going to make it more difficult because you aren't going to be able to make the investments," he said.

Stiglitz, who won the Nobel Prize in Economics in 2001, made his remarks ahead of the Federal Reserve's June policy meeting at which investors are expecting a rate hike of 50 basis points. The Fed has already raised interest rates by 75 basis points since March to tame inflation that's been burning at around 40-year highs.

Supply-side interventions would better serve the world's largest economy, said the Columbia University professor.

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"One of the things that President [Joe] Biden tried to do is to have more care for children and that would mean more women into the labor force," he said. "That releases one of the constraints [in labor] supply."

Biden said last month more than 1 million women haven't been able to return to work after the COVID pandemic because they can't afford childcare. Biden's $1.7 trillion "Build Back Better" legislative agenda that pushed for certain childcare programs stalled in Congress.

"I think we can do a lot more than we're doing," said Stiglitz. "Killing the economy through raising interest rates is not going solve inflation any timeframe," he said.

He also said leaders worldwide should put emphasis on ramping up the production of food. The US used to have food surpluses and it can have them again, he said.

"At least trying to do everything we can globally to increase the supply is going to do more in dealing with the problem than causing a depression," Stiglitz said.

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Inflation hit 8.3% in April, easing somewhat from the 8.5% rate in March.

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