Federal Reserve Squeezes Economy Amid Increasing Criticism

The Federal Reserve raised interest rates again on Wednesday even as criticism mounted that the rate hike could hurt workers.

The Fed’s strategy has received more pushback in recent weeks from economists, Democrats and labor advocates who say higher interest rates could end up punishing workers. without adjusting for inflation.

“Rising interest rates signal to working people that the government thinks we have too much money and we should have less money to spend,” AFL-CIO President Liz Shuler said Wednesday.

“A chorus of economic experts is warning [that] “Hiking interest rates again is a recipe for millions of Americans receiving pink slips, yet the Fed decided to triple what didn’t work,” said Liz Zelnick, a spokeswoman. of the liberal group Accountable.US.

Claudia Sahm, a former Fed economist, said that multiple rate hikes would eventually “push financial markets into a meltdown.”

Earlier this week, a dozen Democrats wrote a letter to Federal Reserve Chair Jerome Powell saying they are “deeply concerned that your interest rate hikes risk slowing the economy to a crawl.” while failing to slow the rising prices that continue to hurt families.”

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In a press conference Wednesday, Powell suggested he would be willing to slow the economy to a crawl if that’s what it takes to control inflation. And he suggests that workers have too much bargaining power because there are so many job openings.

“The labor market continues to be out of balance, with demand outstripping the supply of available workers,” he said.

Early in the day, tThe central bank announced it was once again raising interest rates by three-quarters of a percentage point, continuing the longest pace of rate hikes in decades to bring down the worst inflation in decades.

Higher interest rates make money more expensive to borrow, which makes people spend less, which in turn forces corporations to offer lower rates. But the entire economy slowed down as part of the process.

Everyone agrees that price increases are the result of a mismatch between supply and demand. The Fed’s strategy is controversial, however, because the mismatch is due in part to supply-side problems that Powell acknowledged cannot be solved by interest rates.

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The current fight against inflation also stems in part from simple profiteering, he said Companies are taking advantage of consumers’ continued willingness to pay higher prices. Fed Vice Chair Lael Brainard noted in a speech last month that it would “significantly help reduce inflationary pressures” if corporations received a slightly smaller profit margin. Powell had no questions about corporate earnings Wednesday.

Despite growing criticism of the Fed, there is a bipartisan consensus that the central bank’s strategy is sound. And the Fed has no shortage of high-profile supporters, such as Harvard University economist Larry Summers, who on Wednesday likened the pause in rate hikes to premature discontinuation of the course of antibiotics.

Powell said Wednesday that it would be better for the Fed to hurt the economy badly, and then try to fix it later, than to give up its campaign against inflation. And he said the economic data signaled that the economy needed more pain than previously thought. Job openings fell sharply in August from a near record high, for example, but then rebounded in September, according to the latest data this week.

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“Incoming data since our last meeting suggest that the final level of interest rates will be higher than previously expected,” Powell said.

Powell acknowledged that the possibilities of avoiding a recession – a so-called “soft landing” – are gone.

“The inflation picture has become more and more challenging as the year goes by without question,” he said. “That means we have to have a much tougher policy, and that narrows the path to a soft landing.”

“The inflation picture has become more and more challenging as the year goes by without question,” he said. “That means we have to have a much tougher policy, and that narrows the path to a soft landing.”


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