Inflation in the United States hit a 40-year high. Almost everything in the country has risen in price. To alleviate the plight of American consumers, the Fed has decided to resort to an aggressive monetary policy. According to The Street, many experts are not happy with the way the regulator has chosen to solve the problem of high inflation, including Elon Musk.
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Economists warn that the Fed’s actions could lead to a recession. Musk believes that if the Fed raises interest rates sharply, the US economy will face deflation. Simply put, goods and services in the country will start to get hugely cheaper. Musk shared his fears of deflation with his Twitter followers.
It is worth noting that in developed countries such as the United States or the United Kingdom, deflation is recorded quite rarely. For example, in the 1930s deflation could be observed first in the United States and then in Europe. In the late 1990s, Japan faced huge price cuts.
Deflation is dangerous because it causes consumers to delay purchases in anticipation of even greater price cuts. As a result, aggregate consumption begins to decline. This results in an increase in stocks. Businesses begin to reduce production of marketable products and investments. Deflation can be triggered by a decrease in demand or an increase in productivity.
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