Robert F. Bukaty/AP Photo
A help wanted sign hangs in the window of The Goldenrod, a popular restaurant and candy shop, June 1, 2022, in York Beach, Maine.
Despite the Fed’s best efforts to snuff it out, the economy’s recovery continued last month. The Labor Department’s jobs report, released Friday, showed that the economy added 263,000 jobs in September, led by service sector employment.
The stock market promptly lost several hundred points, since the better-than-expected news on the jobs front means that the Fed is even more likely to raise interest rates another three quarters of a point when the Fed’s Open Market Committee meets again in early November.
But beneath the good news was not such good news. Wage growth is already softening—to just 3.8 percent at an annualized rate in September, far below the rate of inflation, which means workers are taking real wage cuts. See EPI’s smart commentary on this.
The Fed seems determined to continue administering its grim medicine until it creates a real recession. In last Wednesday’s post, I pointed out that none of President Biden’s Fed appointees has seen fit to dissent from the unanimous commitment to keep raising rates and weakening the economy.
If anything, I understated how bad things are. On Thursday, in her first speech as a Fed governor, economist Lisa Cook, allegedly the most liberal of Biden’s appointees, said this:
Inflation poses both a near- and long-term threat. Aside from the immediate effect of higher prices on households and businesses, the longer it persists and the more people come to expect it, the greater the risks of elevated inflation becoming entrenched. I think it is critical that we prevent an inflationary psychology from taking hold.
The theory of “inflationary expectations” is a pretty feeble rationale for deliberately creating a recession. As Cook herself pointed out elsewhere in her remarks:
Much of the surge in inflation over the past year was rooted in the incomplete recovery of aggregate supply from pandemic-related shutdowns. Global supply chain disruptions had especially wide-reaching effects. This year, Russia’s invasion of Ukraine sparked a surge in energy prices and affected global food markets both directly, by reducing shipments of commodities such as grain, and indirectly, by, for example, curtailing fertilizer production. In recent months, some of the upward pressure from those forces has begun to wane.
So Cook’s view, like that of the entire Fed Board of Governors, is disjointed. Hiking interest rates, a policy that she espouses, will do nothing to ease price increases driven by supply disruptions, which indeed are already easing. As Paul Krugman recently pointed out, “the cost of shipping a container across the Pacific, which was $20,586 in September 2021, is now $2,265.”
But these rate hikes will harm workers’ wages. We need a lot more dissent—if not from Fed governors, from economists and from our elected legislators. The Fed keeps making epic mistakes, grounded in wrong-headed theory and excessive political alliance with bankers. It should not be above criticism.
