As a recovering economist, I can tell you that Fed Chair Jerome Powell increasing interest rates yesterday was no more than shooting the wounded. The wounded: working Americans who’ve seen their real wages get clobbered, down by 1.9% in 2022 on top of a 2.1% hit in 2021. Therefore, Mr. Chairman, working Americans are the victims, not the cause, of rising prices — so your fanatic belief that we must raise interest rates to reduce employment is as wrong a policy as it is cruel. (An NPR host actually said that last month’s “rising employment is bad news.” She meant for the stock market. For humans, more jobs are A-OK.)
Apparently, the Fed board was not aware that Ukraine was invaded and oil and gas shot to the moon. Worse, as Ukraine is one of the world’s biggest exporters of grains and edible oils, food costs leaped as well.
Had the Fed’s alleged economists learned of Putin’s invasion, they would have realized that this is not the typical “demand pull” inflation — with too much wealth chasing too few goods and therefore susceptible to interest rate demand dampening. This is a “supply push” inflation — a sudden lack of stuff like oil and food, raising prices on everything.
Last month, Powell said, “If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates.’ Fear the Strong Labor Market for it doth not create a large army of the desperate unemployed.
In other words, Powell kowtowed to the consensus of the pundits who took one econ class four decades ago where they learned to pray to the “Phillips Curve,” a “law” now thoroughly discredited. The flat-lined Phillips Curve is behind the nutty nostrum that slashing employment will cut inflation — and the only way to cut employment is to raise interest rates to high pain level.
So forgive the madness of King Powell — he had a terrible collision at a dead-end Curve.
Greg Palast (Rolling Stone, Guardian, BBC) is the author of The New York Times bestsellers, Billionaires & Ballot Bandits and the book and documentary,
The Best Democracy Money Can Buy.
His latest film is Vigilante: Georgia's Vote Suppression Hitman
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