A slight rate increase? Fed’s cautious stance could hurt jobs

Over the past 20 months, the United States Federal Reserve (Fed) has targeted its monetary policy arsenal towards a single goal: restoring employment, especially for the low-income people whose conditions suffered the greatest impact during the past 20 months. pandemic.

Interest rates remain anchored near zero and central bank debt purchases are still ongoing, even though inflation has accelerated and unemployment has been falling rapidly, a combination that is beginning to resonate with those who believe that, As it stands, the central bank could be doing more harm than good in its goal of reviving the labor market.

In a call for the Fed take a swift turn to stricter policy, prominent Democratic economist and former chairman of the Council of Economic Advisers Jason Furman He said on Wednesday that the central bank was not in tune with the economic situation.

Also, if you have to catch up with a more drastic policy change and accelerating cycles of interest rate increases in the future, you will hurt those you apparently intend to help.

“An overheated economy helps vulnerable workers the most“, wrote Furman, now a Harvard University professor, in a presentation prepared for the Peterson Institute for International Economics.

“But a recession hurts those vulnerable workers the most … Lowering inflation a little now could help obviate the need for even more severe and painful steps down the line and reduce the possibility of a recession with millions of jobs that could be lost.“, Held.

Your call to Fed to accelerate the end of bond purchases and establish a “default” rate hike plan in the first half of 2022 is the latest salvo in the current debate by economists, investors, elected officials and legislators about the risks involved. it raises inflation at 30-year highs, and how the central bank should respond.

Investors currently expect the Fed to raise rates perhaps three times next year. The Federal Reserve is divided on whether it will need to implement credit cost increases in 2022, a situation that Furman says stems from the “delusions”On inflation by at least two authorities of the agency.

Look at her in Biden ads

The rapid pace of price increases was initially seen as a fleeting effect of the reopening after the pandemic, but it has been persistent and greater than anticipated.

The issue has also started to hit the popularity of President Joe Biden, who is pondering whether to reappoint current Fed Chairman Jerome Powell to a second four-year term or replace him with Gov. Lael Brainard.

A decision is expected before the Thanksgiving holiday, the White House said Wednesday, and Biden’s position on the announcement – his “focus”Of the appointment, as Furman put it, could indicate whether the government sees inflation as a risk to the economic outlook and to its plans for major new social and infrastructure spending.

Some economists, such as Nela Richardson of payroll processor ADP, support arguments similar to Furman’s, noting that inflation itself is undermining low-income families who are less able to wait until mid-2022 for the peak. of price increases dissipate.

Other experts note that the dynamics that have kept prices reliably low in recent years, such as the deep discounts available online, have been reversed.

A monthly online price index from software maker Adobe Inc posted its 17th consecutive rise in October, reversing years of steady decline, and is already up 1.9% year-on-year.

“For consumers, the place where they used to expect better and better product value is disappearing“, said Taylor carpenter, director of Adobe Digital Insights, who noticed fewer discounts and offers, even around the holiday season.