On Wednesday’s broadcast of CNBC’s “Squawk Box,” Professor of Economics at Harvard University and former International Monetary Fund Chief Economist Ken Rogoff stated that “the underlying CPI, the underlying core inflation is still pretty strong” and that there will be upward pressure on real interest rates for a long time, and one cause is the fact that “whatever happens with the green transition, that’s going to cost money.”

Rogoff said that “particularly the unemployment and looking at the employment figures I think is really the most important thing, because figuring out what output is, really asks us how do we recalibrate what happened after COVID? There’s quite a distinct possibility that we had a one-time downshift in our potential, and it might be growing back from that. It’s really hard to say, but the employment figures, they had been getting weaker. I think we see — I’m looking at sort of more microeconomic evidence that [job] openings relative to people looking for jobs has been declining. It’s very weak in some sectors like the tech sector. So, we see some signs of weakening. But goodness, the underlying CPI, the underlying core inflation is still pretty strong and around the world and it doesn’t feel like we’re anywhere near this. And I must say, I think the Fed’s going to be facing harder challenges the next decade, not just now, because we’re in an era where there are so many pressures pushing up prices, China is slowing down…and a lot of pressures to raise spending. So, I think the next decade, we may see the Fed lean towards allowing inflation more than it has the preceding decade.”

He added, “They’re not going to say that they’re abandoning getting back to 2% inflation. I think what they’re going to do over time is say, yes, that’s our long-term goal, but we’re going to take it down. I don’t think they’re going to abandon it, but…there are a lot of pressures upward on real interest rates that have happened since COVID. Start with debt is much higher — even — whatever this deal, the defense pressure — pressure for defense spending being higher around the world everywhere is higher, whatever happens with the green transition, that’s going to cost money. Populism, if the Republicans are in power, they’re going to cut taxes. If Democrats are in power, they’re going to raise spending. There are a lot of pressures upward on real interest rates. I don’t think they’re going to go away any time soon. I think we saw extraordinarily low real interest rates from 2012 to 2021, and I think, the next decade, they’re going to be maybe 1.5%, 1.25% higher.”

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