Sky-high inflation is here to stay — so brace for the Fed to stick to its guns on tightening, renowned economist says

The Federal Reserve will have to keep raising interest rates because inflation is likely to stay high.

The Columbia University economics professor warned investors to be prepared for further tightening from the US central bank as he believes supply chain hold-ups and geopolitical shocks will push prices up.

According to CNBC's "Street Signs Asia" on Wednesday, expect the Fed to get aggressive.

I don't think a very mild increase in interest rates will stop the inflationary pressure.

In the last few months, the Fed has raised interest rates by 75 basis points in order to control inflation. In July, the headline rate of consumer inflation fell to 8.5%, but it is still running at four-decade highs.

After injecting money into the US economy to support it during the coronaviruses epidemic, the central bank is going to reduce its balance sheet by around 95 billion dollars a month.

The roots of inflation go back to the beginning of the Pandemic.

In the early months of the Pandemic, the Fed pumped up the money supply so that it wouldn't have a financial crisis. It succeeded in pushing out inflation.

He believes that other issues outside the central bank's control are likely to cause more fuel price increases.

Russia was hit with economic sanctions by western countries after it invaded Ukraine. Oil and gas prices went up because of those measures.

Chinese industries have been held back by local restrictions. The zero- Covid policy is disrupting global supply chains.

The economist said that we keep stoking the supply side shocks with war, sanctions and tensions. The demand-side shock that came from the bulge in liquidity isn't going away soon.

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