The Federal Reserve shocked no one last Wednesday when it announced another 25-basis-point hike to interest rates. Yet our lack of surprise doesn’t mean a lack of questions about the central bankers’ continuing anti-inflation warpath.
Chairman Jay Powell took great pains to leave the impression that the Fed has no problem with a strong labor market and the increased worker flexibility that comes out of it, saying that it was “a good thing that the disinflation that we have seen so far has not come at the expense of the labor market,” even as he continued to make it clear that the central bank’s explicit goal was to tamp down on wage growth.
Perhaps the chairman doth protest too much. While the most recent rate hike was lower than prior ones and the Fed indicated it was slowing down, it had consistently remained more hawkish on inflation than the general economic consensus. Powell pointedly refused to “declare victory or think we really got this,” when it comes to taming inflation, despite months of positive indicators.
That certainly doesn’t ease concerns that the Fed is pursuing a two-pronged strategy here, with the primary and laudatory goal of tamping down on runaway inflation and a more surreptitious effort that serves to weaken labor.
Whatever the motivations, the Fed should learn to take yes for an answer on the inflation front and stop feeding the economy a medicine that it no longer needs, particularly since snarled supply chains, arguably a much larger driver of inflation than wage and employment gains, have largely been straightened out. Insisting on continuing rate hikes, even small ones, threatens to backfire in spectacular ways, as Powell and his board are well aware.
Mass layoffs in significant sectors like the tech industry have myriad causes, but they certainly aren’t bringing the temperature down on recession worries. Having the Fed feed fuel to that fire is of dubious responsibility given its mandate to safeguard the U.S. — and, by extension, global — economy.
