rising wages, low unemployment keep Fed hikes on track
“The economy is still adding more jobs than new entrants to the labor market”
As I’ve said all along, The Fed’s going to keep climbing interst rates until the job market crumbles. Even if the quarterly inflation rate were to come in at .2%, as long as wages continue to climb at 4% The Fed will keep increasing interest rates. The only wages The Fed will abide is for their friends Bankers&Brokers and the 1% ers.
Not trying to pull this off track but, may I ask you to quantify “crumbles.” What kind of unemployment rate do you think the Fed is heck bent on pursuing?
What levers do you think the Fed has to lower inflation? How are they going to get it back to 2 percent?
Andy
Exactly!
This has been my point all along with the federal reserve. The Fed is only interested in subduing one of the most robust job creation markets in years.
The Fed can’t actually state that as their goal because it would violate their congressional mandate:
“maximum employment, stable prices, and moderate long-term interest rates .”
Instead the Federal Reserve “talks” a lot about inflation targets, when their real target is slowing wage growth which by the way is not keeping up with inflation. The Fed really wants a job market where there are as many layoffs and newly created jobs.
It seems to me that the Fed’s real problem is not its dual mandate. It is that Congress and the President have never given it any other tool than manipulating interest rates to fulfill those often conflicting goals. To take money out of the economy or put money into the economy a tax decrease or increase would be a much more efficient method of doing this. But the Fed is basically restricted to “taxing” borrowing or savings depending on its goal. This is often seen as pushing on a string.
Agreed. Furthermore, the executive and legislative branches seem incapable of reinforcing the Fed’s actions with shifts in fiscal policy. Often, they seem to working against Fed policy. This unfortunate habit has been ongoing for years and both political parties have indulged in it.
The Fed was not designed to save the economy nor for the so call dual mandate. It was created to use taxpayer money to save Wall Street banks when they screw up. That’s why it’s called “The Lender of Last Resort.” It ‘lends’ taxpayer money to reckless bankers!!!
The dual mandate is window dressing to hide the real purpose of the Fed.
The Captain
Or this
This is undoubtedly not true in some circumstances, and I’m sure examples abound. Given that this is the macroeconomics board I would think we could overlook the exceptions and focus on the totality - which at the moment, at least, disputes your contention.
Wages are Now finally beating inflation in the latest quarter
But… for the last eight quarters inflation has outstriped wage gain…
One quarter does not a gain make.
The Fed chair probably has some bad memories of the pressure put on him in 2018 when they raised rates to try and get a handle on inflation. They now have an adult in the White House who is not throwing temper tantrums about rate hikes. I expect the Fed to keep raising rates until either inflation is brought down to target, or another ill tempered spoiled brat is elected to the WH.
Inflation is slowing. The real challenge is a holding pattern till we have economies of scale in manufacturing in the US/Mexico.
Then we can put more pressure into a fiscal policy for much higher real GDP growth.
The reason we are in that holding patterns early factories being built out in the US really began to up the numbers in 2022 and factories coming online can take two years to complete.
UpNorthJoe, exactly right on all counts. I’ve said the same thing myself. Powell should have kept raising in December 2018. He let himself get bullied by a man-child, and now we’re in this position. I’m not sure who to blame more, Powell or the man-child. If this had been done 5 years ago, before the pandemic, think of how good things would be today.
I”m really hoping this is the last rate rise for a while. The effect of the end-of-embargo on student loans won’t be known by the time the Fed meets next (September), as it doesn’t start until October, and the impact won’t show up for another couple months after that. But I suspect it will weigh heavily on the consumer end of things by December or so. So the Fed has several more meetings before that, and I’m hoping they are patient enough to just sit tight, especially since most of the underlying trends seem to be heading, albeit slowly, in the right direction.
bj,
We can go back to 2008 when the country should have pivoted to demand side econ on a counter cyclical basis. Some folks were to ignorant to have a clue what good that would have done for our nation. Instead the Me me me generation never grew up on the whole.