Federal Reserve Squeezes Economy Amid Increasing Criticism

The Federal Reserve raised interest rates again on Wednesday, even as criticism grew that the hike could hurt workers too much.

The Fed’s strategy has received more pushback in recent weeks from economists, Democrats and labor advocates, who say higher interest rates could end up punishing workers without taming inflation.

“Raising interest rates signals to working people that the government thinks we have too much money and should have less money to spend,” AFL-CIO President Lisa Shuler said Wednesday.

“A chorus of economic experts has warned [that] raising interest rates is once again a recipe for millions of Americans getting pink slips, yet the Fed has decided to triple down on what isn’t working,” said Lisa Zelnick, spokeswoman for the liberal group Accountable.US.

Claudia Saam, a former Fed economist, said the rate hike would eventually “squeeze financial markets to the breaking point.”

Earlier this week, a dozen Democrats wrote in a letter to Federal Reserve Chairman Jerome Powell that they are “deeply concerned that your rate hikes could slow the economy to a crawl while failing to slow the price increases that continue to hurt families.”

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At a press conference Wednesday, Powell suggested he would be willing to slow the economy to a crawl if necessary to control inflation. And he suggested that workers have excessive bargaining power because there are too many jobs.

“The labor market is still out of balance, with demand far outstripping the supply of available workers,” he said.

At the beginning of the dayThe central bank said it has raised interest rates again by three-quarters of a percentage point, continuing the highest pace of rate hikes in decades to reduce the worst inflation in decades.

Higher interest rates make it more expensive to borrow money, which forces people to spend less, which ideally forces corporations to offer lower prices. But the entire economy slows down as part of the process.

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Everyone agrees that price increases are caused by a mismatch between supply and demand. The Fed’s strategy is controversial, however, because the mismatch has been caused in part by supply problems, which Powell has acknowledged cannot be fixed by interest rates.

The current bout of inflation also stems in part from simple profiteering, as companies take advantage of consumers’ continued willingness to pay higher prices. Fed Vice President Lael Brainard noted in a speech last month that it would “significantly help reduce inflationary pressures” if corporations could accept slightly lower profit margins. Powell did not ask any questions about corporate earnings on Wednesday.

Despite growing criticism of the Fed, there is a bipartisan consensus that the central bank’s strategy is sound. And the Fed is not short of high-profile supporters, such as Harvard University economist Larry Summers, who on Wednesday equated the rate hike freeze. prematurely stopping the course of antibiotics.

Powell said on Wednesday that it is better for the Fed to hurt the economy too much and then try to cure it later than to compromise on its anti-inflation campaign. And he said the economic data showed the economy needed more pain than previously thought. The number of job openings fell dramatically in August, for example, from near-record highs, before rising again in September, according to the latest data this week.

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“Incoming data since our last meeting suggested that the final level of interest rates will be higher than previously expected,” Powell said.

Powell acknowledged that the chances of avoiding a recession — a so-called “soft landing” — had diminished.

“The inflation picture has become increasingly complex this year,” he said. “That means our policies have to be tougher, and that narrows the path to a soft landing.”

“The inflation picture has become increasingly complex this year,” he said. “That means our policies have to be tougher, and that narrows the path to a soft landing.”

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