The Federal Reserve Is Coming For Your Next Raise

by | Oct 20, 2022 | Politics

As the Federal Reserve fights rising prices, its efforts will be felt not just by borrowers and bond traders but also pretty much anyone who works for a living.The central bank has been raising interest rates, making money more expensive to borrow, in a bid to slow down the whole economy so people don’t spend so much. That way, businesses will offer lower prices.Part of the solution involves what Fed Chair Jerome Powell calls “softening of labor market conditions.” That softening, as Powell and his colleagues envision, will involve higher unemployment in the coming year. AdvertisementBut Fed officials speak in abstractions, discussing supply and demand or the importance of righting imbalances between the two, while avoiding talk about the material consequences for workers.“The language that’s used to talk about monetary policy is almost designed to make it less clear what actually is at stake and what the real goals are,” said J.W. Mason, an associate professor of economics at the City University of New York’s John Jay College of Criminal Justice.Powell has acknowledged that there will be some “pain” in the Fed’s campaign against inflation, maybe to the point of recession. But even workers who stay employed will feel the impact of increased interest rates.“The only way in which higher interest rates reduce inflation is by raising unemployment and thereby inducing workers to accept lower wages,” Mason said.AdvertisementWage growth accelerated this year to the fastest pace in more than two decades, but overall the gains haven’t kept pace with rapidly rising prices for consumer goods. Powell has described stable prices as a necessary ingredient for a healthy economy.The nominal wage growth occurred amid an economywide mismatch between supply and demand that economists say resulted from supply problems, such as COVID-19 lockdowns in China and the war in Ukraine, and also strong pandemic relief policies.The Fed can’t do anything about the supply issues, but Powell has said it …

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