Jared Bernstein is an economist and senior fellow at the Center on Budget and Policy Priorities. He was formerly chief economist to Vice President Joe Biden and a member of President Barack Obama’s economics team.
When I was a kid we had this crazy dog that used to chase cars for all he was worth. My father used to yell after him, “What the heck you gonna do with it if you catch it?!?”
Given much of the recent economic news, one might say the same thing to John Kerry (I'm afraid I know what George W. Bush would do): If you win, what are you going to do with the spate of developing economic problems?
A few months ago, the Federal Reserve made it clear that, given that the recovery was more or less on track, it was going to start raising interest rates off their 46-year low. It did so at its most prior meeting in June, raising the federal funds rate -- the interest rate banks charge each other for overnight loans -- from 1 percent to 1.25 percent. Today they went up another 0.25 percent to 1.5 percent.
Why'd the bank do it?
The June decision announced (in Fed-speak) that the Fed was going to continue boosting rates; the consensus was that, barring a big economic surprise, it'd probably keep at it for a while. If anything, it was suggested, the Fed might have to raise rates less incrementally than it'd like to.
After the worst jobs report in months came out last Friday, the President, in an almost Stepford-like fashion, asserted that his tax cuts are working and the economy is “strong and getting stronger.”
In fact, fewer than 100 days before the presidential election, unemployment is stuck where it was when the recovery began two-and-a-half years ago. Real wages are down over the past few months. And many who have found new employers after losing their jobs during the recession or its jobless recovery are earning less than they used to.
The fact that some in the Bush camp are in denial about the data is to be expected at this point in the game, but it seems like a good time to set out the relevant facts, both positive and negative.
At the end of June, that very powerful group of bankers, the Federal
Reserve's Open Market Committee (FOMC), got together under Chairman
Alan Greenspan's leadership to decide whether they should try to slow down
the pace of economic growth by raising the federal funds rate.
That's the interest rate that banks charge each other for loans; the
important thing about it is that when it goes up, it raises the cost of borrowing
throughout the economy. That, in turn, usually dampens investment and
hiring activity, but the ultimate target is inflation. Raising the
price of borrowing, the idea is, will dampen the pace of economic growth
and take some of the pressure off prices.
It's official: Though the economy is clearly expanding and jobs are coming back, the benefits of growth are once again accruing to the wealthy. After a brief hiatus during the late 1990s, economic inequality is reasserting itself.
No less than the nation's chief economist, Federal Reserve Chairman Alan Greenspan, noted this in recent testimony, stating that “most of the recent increases in productivity have been reflected in a sharp rise in the pretax profits…” This trend stands in sharp contrast to the way growth was apportioned just a few years ago, when the benefits of workers' increased efficiency were broadly shared.