THE BEATINGS MUST CEASE!

Man, this stuff is sounding like a broken record. Seems like you can’t escape news about how prices are popping and driving inflation up to a four decade high. Seems like you can’t flee from talk about the FED jacking up its benchmark interest to tamp down inflation. Seems like you can’t hide from gloomy talk about the possibility of a recession that lies just beyond the bend.

And perhaps that’s how it should be. Perhaps we should not be able to get much of a break from this stuff. Perhaps we need to be required — or even forced— to stare into the abyss and contemplate the misery that, like a missile, could be headed straight toward us. A missile that, if it explodes, will leave in its wake heightened levels of joblessness, deeper pockets of poverty, increased levels of small business failures, greater levels of homelessness, and strengthened movements of authoritarianism. Hyperbole?

Perhaps.

But this much is certain: The economic road the Federal Reserve is leading us down is likely to end us up in a ditch.

PRICES UP, EARNINGS DOWN

Recently released data shows that one that one of the major metrics used to track inflation—the Consumer Price Index (CPI)— is now increasing at an annual rate of 8.2%. That’s lower than the 8.3% figure reported in September’s report but more than the 8.1% many economists had been expecting.

And it’s even worse when it comes to core inflation. That’s the CPI that excludes such volatile categories as food and energy. Core inflation clocked in at annual rate of 6.6%, the biggest twelve month gain since 1982.

It’s also important to remember that the Bureau of Labor Statistics over the past year workers have experienced a 3% drop in their real average hourly earnings. In other words, once you take inflation into account, workers are worst off—at least when it comes to hourly pay— than they were just twelve months ago.

THE FED’S NEXT MOVE

All of which, unsurprisingly, leads back to the Federal Reserve.

Unless you’ve been hiding under a rock or have decided to willfully ignore what’s been jumping off around you, you probably know that the FED has been jacking up its benchmark interest rate to tamp down inflation.

On March 17th, the FED—aka “Jerome Powell and dem”—raised its benchmark interest rate by 25 basis points (1/4 of a percentage point). That was followed by increases of 50 and 75 basis points on May 5th and June 16th, respectively. And those were then followed by July’s and September’s increases of another 75 basis points (3/4 of a percentage point) each.

The FED has two more meetings this year, one on November 2nd and the other on December 14th. Based on all the available data thus far, it’s a sure bet that we’re looking at rate increases at both remaining meetings.

Even more, given the data that’s now available— not to mention the FED’s public pronouncements about its intention to keep punching until they knock the wind out of inflation— what we’re probably looking at is a 75 basis point increase in November, and a December “year-end” close-out of at least 50 basis points.

Now, just in case you’re thinking that we’re not looking at some pretty high year-end increases in the Fed’s benchmark interest rate, remember that for the last several months Chair Powell has been making it a point to engage in public chest thumping about his commitment to continue increasing that benchmark interest rate until he and his colleagues see clear and convincing evidence that the inflation monster is back to a long-run 2% growth rate.

His attitude is that he’s in it to win it. Even if that means that some households and businesses have to experience the pain of unemployment that could result from using the interest rate as a tool to “soften up” an economy that he and his colleagues believe is running too hot.

And, if you’re struggling to get a handle on precisely what “soft” means, I’d suggest starting with the FED’s Federal Open Market Committee’s (FOMC) updated economic projections. Members of the FOMC are now projecting that, by the end of this year, the unemployment rate will rise to 3.8— and will hit 4.4 in 2023 and remain there for 2024.

Given the size of the current labor force, the hiking of the Fed’s benchmark interest rate would result in the ranks of the unemployed swelling by an additional 1.25 million persons.

By the way, if the aggregate unemployment rate hits 4.4% in 2023 and remains there for 2024, then we’re looking at a Black unemployment rate that’s in double digit territory, twice as high as that for the labor force as a whole.

CEASE RAISING THE INTEREST RATE

Right now, what we need is for the FED to refrain from further interest rate increases. I say this for two primary reasons.

First, the series of rate increases is having next to no effect on price increases. The FED’s first increase of 25 basis points (1/4 of a percentage point) came in March. This was followed by a 50 basis point increase in May, and in the months of June, July, and September, the FOMC increased the benchmark interest rate by 75 basis points per month.

Despite all of this, inflation—as measured by the Consumer Price Index (CPI)— barely budged, dipping slightly from March’s annualized rate of 8.5% to September’s 8.2%.

The FED seems to have adopted the motto, “The beatings shall continue until morale increases.” But judging by the looks of things, the “beatings” aren’t doing much in the way of tamping down inflation and if they—the “beatings”— continue, then the FED is running the serious risk of driving us off a cliff and into a ditch of elevated joblessness.

All of which brings me to the second reason for the “beatings” to stop:

There’s compelling reasons for believing that our current bout of inflation is primarily the result of busted supply chains, the war in Ukraine, and corporations taking advantage of current inflationary conditions to straight up price gouge consumers. Jacking up interest rates do absolutely nothing to resolve these supply side issues; it does, however, point us right back in the direction of elevated joblessness coupled with no appreciable reduction in inflation.

Again, it’s hard to overemphasis the damage that the FED’s current “continue the beatings” strategy might directly afflict on the lives of millions of persons.

Economists Joseph Stiglitz and Dean Baker certainly don’t mince words when discussing what they see as the ineffectiveness and dangerousness of the FED’s instinctive support of the “beatings must continue” approach to resolving this current bout of inflation.

Here’s some of what they say:

Because interest-rate hikes achieve their intended outcomes by curtailing demand, they don’t “solve” inflation arising from supply shocks—such as rising oil prices (as in the 1970s and again today) or the kinds of supply-chain blockages seen during the COVID-19 pandemic and in the wake of Russia’s war in Ukraine. Higher interest rates will not lead to more cars, more oil, more grain, more fertilizer, or more baby formula. On the contrary, by making investment more expensive, they may even impede an effective response to supply-side problems.

WRAP UP

So, don’t let anybody convince you that these “beatings” are necessary.

Don’t let anybody convince you that the only or best way to fight inflation is by the FED jacking up its benchmark interest rate to choke off consumer demand and elevate the level of joblessness.

Don’t let anybody convince you that “mama and dem” must be sacrificed to satiate the thirst of the inflation monster.

Again, ideally what should happen is the FED should put a pause on its current strategy of pushing up its benchmark interest rate to tamp down on inflation.

The “beatings” need to cease.

And its place, the forces of progressivism must do everything in its power to push for an anti-inflationary policy that, among other things, gives serious consideration to price controls, cracking down on monopolies, and taking the fight to those corporations who are using inflation as an opportunity to fatten the coffers by price gouging the public.

It’s possible to tame inflation without damaging the economic security of our siblings.

And we can change the narrative and the possibilities by refusing to believe that economics is about deciding which foot to shoot ourselves in.