… Robert Reich says the Fed is the wrong fighter, using the wrong weapon, pointing it at the wrong enemy.
https://www.theguardian.com/commentisfree/2022/jul/31/us-inf… Inflation has broken out all over the world – the consequence of pent-up demand from more than two years of pandemic and of limited supplies of everything from computer chips to wheat, due to difficulties getting the world economy up and running.
Add in Putin’s war in Ukraine driving up world energy and food prices, and China’s lockdowns against Covid, and you get a perfect conflagration.
That’s not all. Big corporations are busily raising their prices because consumers have so little choice. Corporations are using inflation as cover.
/snip
If markets were competitive, companies would keep their prices down to prevent competitors from grabbing away customers. But they’re raising prices even as they rake in record profits.
Robert Reich is spot on and Powell knows it. Powell testified before the finance committee and when asked said that the Federal Reserve’s actions have no influence whatsoever over Energy, Oil, Food, all of the forces driving inflation.
Instead, Powell is going to cause a big recession; construction could demise back to 2010 levels. If the housing supply falls further behind demand, rents will skyrocket in the near term and housing costs will continue to be out of reach for millennials for years to come. Wages will freeze and the wealth gap will increase.
The Fed doesn’t admit it, but the aim of raising interest rates is to increase unemployment.
In my opinion, statements such as the above should be preceded by “In my opinion”, not stated as facts.
So what does the Federal Reserve aim to control/contain by aggressively raising interest rates if the Chairman has admitted under oath that the Federal Reserve can not influence or contain inflation of the driving forces of inflation: Energy, Oil, Food, Staples, tuition, health care, and pharmaceuticals?
Worse corporations respond to interest rates when deciding their IRR. If an IRR is low a project wont get done. Meaning factories wont get opened to increase supply. The FED is raising inflation longer term.
The FED should be buying the bonds in a roll off as they are doing.
Raising rates though slows factory building.
Raising rates drops input costs, which in turn increases the IRR and factory building.
… Robert Reich says the Fed is the wrong fighter, using the wrong weapon, pointing it at the wrong enemy.
I think there’s a bit more nuance to Reich’s statements here.
Yes, the Fed and rising interest rates is not the best weapon against inflation at the moment. The current round of inflation is mainly induced by supply problems, not excess demand. To fix supply issues, we need fiscal policy adjustments by Congress. And I think that’s the main point Reich is making. Congress needs to act.
However, that does not mean that the Fed has no contribution to make. We still need rising interest rates to suppress demand somewhat while the much slower-moving Congress decides what actions to take. Lower demand (and yes, lower employment and even a recession) helps buy time for Congress to act.
I’d also point out that the Fed has two formal mandates: keep inflation low and employment high. But they only have one tool to use - interest rates. Fighting inflation is squarely in the Fed’s area of responsibility. So the Fed is doing exactly what it’s mandate requires, raising interest rates. So far, they are raising interest rates to combat inflation without any negative impact on employment. So far. I have no doubt that rising interest rates will eventually spill over into employment. But employment can fall (or unemployment can rise) from it’s current rate while still remaining within the Fed’s targets.
Once again someone didn't stay awake in 'Reading and comprehension' class.
A block of gray text doesn't invite the would-be reader's interest.
Let's try again:
Robert Reich is spot on and Powell knows it.
Powell testified before the finance committee and when asked said that the Federal Reserve’s actions have no influence whatsoever over Energy, Oil, Food, all of the forces driving inflation.
Instead, Powell is going to cause a big recession; construction could demise back to 2010 levels.
If the housing supply falls further behind demand, rents will skyrocket in the near term and housing costs will continue to be out of reach for millennials for years to come.
Wages will freeze and the wealth gap will increase.
The Fed doesn’t admit it, but the aim of raising interest rates is to increase unemployment.