Nobel laureate Paul Krugman says the Fed can crush inflation without tanking the economy or causing unemployment to soar

Paul Krugman believes that the Federal Reserve can control inflation without causing a spike in unemployment.

An inverse relationship between inflation and unemployment is proposed by thePhillips curve. He used the expectations-augmentedPhillips curve, which suggests higher inflation raises expectations of future inflation, and therefore the level of unemployment needed to curb price increases.

Despite inflation hitting a 40-year high this summer, medium-term inflation expectations have not sprung up. There will be no need for above-normal unemployment if expectations stay stable.

The New York Times columnist highlighted a number of recent data points that suggest inflation may be slowing, including declines in gas prices, world food prices, and factory orders. He acknowledged that the trends could change.

Krugman explained on Sunday that he was making a dovish counter argument to inflation hawks. The former Treasury secretary said in a recent interview that the Fed might have to raise inflation to over 6 percent in order to lower annual inflation to 2%.

The idea that the US could avoid a recession was dismissed by Summers as the triumph of hope over experience.

Krugman made a positive note on the social networking site. He said that current data suggests the need to cool off the labor market.

In the early 1980s, Paul Volcker, a previous Fed chief, raised rates as high as 20%. He caused the economy to go into a recession and pushed the unemployment rate up.

Krugman said that we can have a soft landing. I want gradual rate hikes until there are clear signs of slowing inflation.

Investing legend Jeremy Grantham warns that the stock market is in a bubble similar to the one that caused the largest crash in history.