To Fight Inflation, The Fed Declares War On Workers
Federal Reserve Chair Jerome Powell. (AP Photo/Jacquelyn Martin)
By leaving the problem of inflation to the central bank, Democrats are accepting an attack on labor power.
by Julia Rock
New inflation data released Friday offered dismal news: Historic price increases aren’t showing any signs of abating, and in fact may be accelerating.
What can be done? Federal Reserve Chairman Jerome Powell has an idea: throw cold water on the hot labor market — perhaps the one bright spot in the current economy.
In fact, Powell recently screamed the quiet part out loud, making clear the largest central bank in the world is in fact an adversary to workers, when he declared that his goal is to “get wages down.”
At a May 4 press conference in which he announced a .5 percent interest rate hike, the largest since the year 2000, Powell said he thought higher interest rates would limit business’ hiring demand and lead to suppressed wages. As he put it, by reducing hiring demand, “that would give us a chance to get inflation down, get wages down, and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially.”
In other words, Powell is saying that the primary, blunt financial instrument at his disposal to address sky-high inflation — hiking interest rates — will limit job opportunities and suppress pay.
Increasing borrowing costs and discouraging investment would not do much to address the root causes of today’s inflation — brittle supply chains, a surge in energy prices further heightened by Russia’s invasion of Ukraine, a housing crisis (which could actually be exacerbated by interest rate hikes), all of which are undergirded by corporate concentration enabling exorbitant corporate profits.
Hiking rates would likely suppress wages and worker power, as Powell indicated, a roundabout way to tackle inflation. That’s because there is overwhelming evidence that worker wages are not driving inflation, especially since wage increases are failing to keep up with rising prices. Friday’s data showed that while wages have continued to increase, the rate of increase is slowing.
Does the Fed chairman really mistakenly believe that wages are driving inflation? If not, Powell — a mega-wealthy private equity mogul and a Republican — might have just validated an argument long made by progressives: that a key driver of the central bank’s interest rate policies is actually to suppress labor power.
Meanwhile, if President Joe Biden and the Democrats who control Congress continue to sit on their hands and fail to take real action to address skyrocketing energy prices, the supply chain crisis, and corporate greed, they will be accepting a response that will force workers to bear the brunt of the crisis.
“If you endorse today’s rate hikes, and the further tightening it implies, you are endorsing the reasoning behind it: Labor markets are too tight, wages are rising too quickly, workers have too many options, and we need to shift bargaining power back toward the bosses,” Josh Mason, an economist at the Roosevelt Institute and a professor of economics at John Jay College, City University of New York, wrote in a recent blog post.
The Fed And Worker Power
The Fed, which is tasked with controlling the money supply and regulating banks, was given a dual mandate by Congress in 1978 to guide a monetary policy aimed at economic growth: Achieving “full employment” and “price stability.”