The Federal Reserve Strategy on Inflation Is Top-Down Class War
By Jim Miller
Jerome Powell, Chair of the Federal Reserve, recently reiterated that job losses were an acceptable cost in the war against inflation as the steady uptick in interest rates continued despite recent financial turmoil. This should come as no surprise as Powell has been ignoring pleas to consider the plight of working people for some time now and seems deeply committed to a strategy that throws workers under the bus.
Last Fall, the AFL-CIO released a statement urging the Fed to stop policies that were putting the squeeze on workers, and folks like Senators Elizabeth Warren, Sherrod Brown, and Bernie Sanders have pointed out that the focus on raising interest rates ignores the role that corporations have played in jacking up prices. Economists such as Robert Reich have also weighed in, suggesting that price controls might be a better move than the current strategy. All to no effect.
Recently, critics elsewhere have joined the chorus of condemnation with the economist who rightly foresaw the Great Recession jumping into the fray. As a Fortune piece noted:
The Fed and other central banks have underlined tight labor markets and high wages as key underlying causes behind inflation. But while loosening job markets might help cool down the economy, it also means layoffs, joblessness, and a potential recession—an unacceptable and risky trade-off for some critics.
“[C]ivil servants that head up central banks seem willing to sacrifice private banks and global financial stability in their rush to raise rates, crush demand, discipline workers and shrink the nation’s income,” Ann Pettifor, a British economist and frequent economic adviser who predicted the 2008 global financial crash with a prescient 2006 book on mounting debt worldwide, wrote in her Substack newsletter Sunday.
“In other words, their effective preference is for class war over financial stability."
Pettifor’s candor is both refreshing and spot on. What we are seeing play out is a concerted effort to lower inflation in a way that assures that most of the pain is felt at the bottom of the economic spectrum. Many observers have predicted that the Fed’s obsession with raising interest rates, if successful, would result in the neighborhood of 1.5 million jobs lost and widespread pain for working people.
So it goes, shrugs Powell.
As Robert Reich is quoted as saying in a prescient Salon piece on the matter:
"Once again, interest rate hikes are going to fall hardest on low-wage workers and the poor—the same people who have already been hurt the most by rising prices," tweeted University of California, Berkeley professor and former Labor Secretary Robert Reich. "Higher rates could also imperil more banks, and risk even more financial chaos. The Fed is playing with fire."
Joining Reich is such criticism is Patriotic Millionaires chair, Morris Pearl, who calls the incessant interest rate hikes “dangerous” and adds that:
Rising interest rates do nothing to address a major cause of inflation, corporate price gouging, and actually make another long-term cause, lack of investment in new housing, worse. Instead, the Fed is betting that lowering employment and cooling wage growth is the best solution to inflation.
Thus, what we are witnessing under a Democratic administration is a top-down class war that will do nothing for working people except feed their anger and make it easy to direct it at all the wrong sources. What Biden should do, rather than triangulating for cynical political purposes is listen to his progressive allies and show Powell the door in favor of someone who will take the circumstances of ordinary people more seriously.