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The Federal Reserve Can’t Fix Supply Problems, But It Can Make People Poorer | HuffPost Latest

But the Fed can’t do anything about COVID lockdowns in China or the war in Ukraine. The central bank can only suppress demand by hiking interest rates, and it’s doing so at the fastest pace in decades. Higher interest rates make borrowing more expensive, meaning people and businesses will likely take out fewer loans and spend less money. Reduced consumer spending means fewer jobs.

“Our objective, really, is to bring inflation down to 2% while the labor market remains strong,” Federal Reserve Chair Jerome Powell said at a press conference last month. “I think that what’s becoming more clear is that many factors that we don’t control are going to play a very significant role in deciding whether that’s possible or not.”

– Jin Woo Chung, senior economist at the progressive think tank Groundwork Collaborative

Some economic indicators suggest the labor market may already be cooling off. On Friday, the Labor Department reported strong but slightly slower job and wage growth in June than in previous months. Heidi Shierholz, president of the liberal Economic Policy Institute, said “this decelerating wage growth means the Fed doesn’t need more interest rate increases to contain inflation.”

“By slowing demand too aggressively, they could very well cause an economic downturn and get a lot of people fired and make people poor, make families poor, even though they’re already struggling from rising prices,” Jin Woo Chung, senior economist at the progressive think tank Groundwork Collaborative, said in an interview.

“Right now, the Fed has no control over the main drivers of rising prices, but the Fed can slow demand by getting a lot of people fired and making families poorer,” Warren said. “You know what’s worse than high inflation and low unemployment? It’s high inflation and a recession with millions of people out of work.”

McConnell said it’s a shame that Democrats caused inflation by passing the American Rescue Plan early in 2021, a bill that boosted the value of unemployment benefits and doled out $1,400 stimulus checks. (Senate Republicans previously supported two major stimulus bills that sent people checks.)

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