7 ms·

US Federal Reserve says its goal is ‘to get wages down’

99 points by ushakov 4y ago

zja 4y ago
I'm reminded of Chomsky's comments on Alan Greenspan saying the exact same thing when he was chairman. https://www.youtube.com/watch?v=sy5eNIyzKqM https://www.youtube.com/watch?v=sy5eNIyzKqM
phendrenad2 4y ago
How exactly do they intend to accomplish this? With a wave of a magic wand? Maybe they can give tax cuts to companies that cut wages? Maybe they can tax companies that pay employees more than $x/year. These seem like bad ideas.
- rektide 4y ago
  If they manage to close/ruin enough businesses, there'll be a lot more people looking for work.
  - onlyrealcuzzo 4y ago
    There's more than enough bad businesses that only exist because the price of debt is less than inflation thanks to the Fed. As soon as they stop egregiously manipulating the price of debt - those businesses will fall like dominoes.
- krona 4y ago
  Unemployment.
- gadflyinyoureye 4y ago
  Taxes could work. Maybe they will push to create a national health system. The poor would go from getting 10-25% of their yearly income from the Feds via various tax give awaysa to actually paying 10-15% of their income. That would cool the economy as you pass higher taxes further up the progressive tax chain. Most middle class members would probably end up paying $10k per year in new taxes. They could also pass a carbon tax. Energy costs would double or triple. Suddenly the average home would pay $1800 per month to keep their food from spoiling. Essentially lock large amounts of money into required bills. Edit: even if 1800 is on the high end, the cost shock of taking an apartment with $250 per month to 500-700 will still put a huge cooling effect on inflation. And yes, large portions of the United States need A/C and more will to cope with climate change. Also think of the cost to businesses of all sizes. Keeping offices, showrooms, and other such buildings will limit hiring and pay raises.
  - BiteCode_dev 4y ago
    A $1800 energy bill would supposedly be the triple of a $600 energy bill that people pay for their fridge ? I got a fridge, a freezer, a giant screen a phone, a dyson, an electrical water heater and a computer and various electrical cooking appliances. I pay $60 a month. Who pays $600? Is that a common price in the US?
    - leetcrew 4y ago
      I dunno about $600. $200-300 was a typical bill for an older detached 3BR when I was in college. split several ways of course. it wouldn't surprise me if people with significantly larger (and poorly insulated) houses paid a lot more, but that wouldn't be common. AFAIK, the vast majority of an energy bill typically comes from heating and cooling. appliances don't contribute that much. in my current 1BR, with great insulation and neighbors above, below, and on both sides, I too pay about $60 for utilities.
    - geoduck14 4y ago
      Do you have an air-conditioner?
      - BiteCode_dev 4y ago
        No, however heating is $200 if electrical. But I work from home, so it's always on high temps, unlike for most people. Also, that's still far from $600, that's not anymore "preventing your food to spoil", and that's only a few months a year. A/C as well, you don't usually use it in december in most parts of the US. So yeah, I find this number surprising for a very rich country that should have great infrastructures.
    - hindsightbias 4y ago
      For an older McMansion in TX or FL, not far out of line.
- arcticbull 4y ago
  The Federal Reserve doesn't control fiscal policy - only monetary policy. They don't set tax rates. They only control the money supply. They are able to reduce wages by increasing interest rates. Businesses have to spend more money servicing debt - and can't obtain more debt as inexpensively - so they can't afford to pay workers the same rates.
  - landemva 4y ago
    >> They don't set tax rates. Federal Reserve's FOMC claims to set short term interest rates. https://www.federalreserve.gov/monetarypolicy/openmarket.htm https://www.federalreserve.gov/monetarypolicy/openmarket.htm
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- stu2b50 4y ago
  Interest rates (if capital is harder for companies to find they will hire less, pay less, and maybe even layoff folks because... they have less money on hand) and more government bonds (private entities putting their money into bonds removes dollars from the economy)
freedomben 4y ago
I may have missed it in the article, but what are some of their ideas for accomplishing this? And do they want to give the entire working class a haircut, or is this targeted at certain industries or levels, such as low-skill manufacturing, or are they also talking about doctors and lawyers?
- britch 4y ago
  As I understand it the idea is that raising interest rates makes cash "expensive" to incentive businesses to reduce immediate costs--lay people off. Hold on to the value-holding assets (property), get rid of the immediate costly thing (primarily wages). More people looking for work means people willing to work for less. It's imprecise Likely people who are "easy to replace" get the axe first, but that doesn't mean others don't get affected as well.
- llimos 4y ago
  I can tell you one group they're not talking about: People who work at the Federal Reserve.
- MAGZine 4y ago
  This is a really trash article. It's really biased--the economist they interview is part of this group: https://internationalmanifesto.org/ https://internationalmanifesto.org/ Not to attack his credentials, but I think the website picked him to comment on things for a reason. Clicking around the website has a bunch of other questionable material, at least from a neutrality perspective. It is an interesting perspective nevertheless, but not without bias. That said, i think they removed some important context from the fed's position. What the chair of the fed is saying is that they want to moderate demand. Less demand means fewer open positions at companies. Fewer open positions means the labour market is not so tight, and so not such an (increasingly) high premium needs to be paid for labour. Without having to blow out the budget to hire people because you're so desperate, you don't have as raise prices so much to compensate. He's not talking about getting companies to cut wages. He wants to cut wage growth because it feeds into (in his opinion, mind you) spiraling wages. You can read the original transcription here: https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11651696613 https://www.wsj.com/articles/transcript-fed-chief-powells-po... To tangentially answer your question: they want to do this because high inflation impacts the working class the most. They need price stability. I don't necessarily disagree mind you that corporate greed is fueling inflation more than minimum wage, but it's probably a both thing versus one or the other.
hitpointdrew 4y ago
The only realistic way the government could even attempt to accomplish this in any practical way is if they implemented a UBI.
- vinyl7 4y ago
  That won't do anything because that creates a price floor, same way that minimum wage creates a price floor. The real way to do it is to remove the price floor
- jimbob45 4y ago
  Quite the opposite, no? Only by removing unemployment benefits and welfare payments could the general population be coerced into returning to the workforce. However, I think both of us would agree that such a strategy would be one for Congress to implement, not the Fed. Edit: I'm not advocating for or against such a strategy.
  - donthellbanme 4y ago
  - nightfly 4y ago
    Its old people that left the workforce, they aren't coming back.
- StanislavPetrov 4y ago
  They could import millions of foreign low-wage workers with a defacto open borders policy. And they are.
- chrisco255 4y ago
  UBI would cause unbelievable inflation. The inflation we are seeing is a result of money printed and distributed over the last two years that is not backed by productive output. UBI is a magic wand fantasy.
- jjtheblunt 4y ago
  Why do you think that, numerically?
newaccount2021 4y ago
encryptluks2 4y ago
- deleted 4y ago
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- reactjavascript 4y ago
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pjc50 4y ago
This has been orthodox economic policy for decades. There's two usual prongs: - put up interest rates. This raises the cost of business credit, and at the margin, puts people out of work, until employment reaches the "non-accelerating rate" (NAIRU) - break labour power by legislating against unions, breaking up state-owned businesses into the private sector, and promoting the Uber-style "independent contractor" model where people aren't employees The public may be exposed to rising food and fuel costs, but if they can't demand higher wages that can't feed forward into higher prices and a wage-price spiral. Yes, this involves a lot of worsening of living conditions.
- arcticbull 4y ago
  I agree with you broadly. I think it's important to consider though that what we have right now isn't a demand crisis but a supply shortage. There are, thanks to all sorts of reasons (the fallout of COVID lockdowns from 2020-2021, supply chains, war in Ukraine between an oil exporter and a grain exporter, COVID zero in China) not enough things available for everyone to buy. The amount of money folks have and are being paid - and are demanding at new jobs - cannot turn into the same quantity of goods now as it would have two years ago. Hence rising prices. One of two things can happen: - We can increase supply of goods, fix supply chains, infrastructure, bring in more labor, etc. - We can decrease demand by reducing the amount of money in the system (increase interest rates, reduce wages). But like, one or both of these things have to continue to happen until the demand for goods and services matches the available supply of goods and services. Yes, this may lead to worsening conditions but that's because we don't have enough stuff for everyone to get what they want right now.
  - ItsMonkk 4y ago
    It's mostly a demand shock, not a supply shock[0]. The supply chains are busted mostly because of unprecedented demands. But considering that most normal people spend just about all of their money each month, and with personal savings rates below where they were before CO-VID and credit levels rising, either inflation ends by itself or the demand as it turns out, is coming from the wealthy looking to shelter their cash in safe commodities during the recession and away from bubbled assets. [0]: https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-supply-shock-and-its-everywhere https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-...
gsibble 4y ago
Of course. We can't raise interest rates because we need to protect asset prices for the rich and don't want to pay more interest at the government level or on the $8T borrowed in the last decade for stock repurchases by the Fortune 500.....so let's pay workers less. Yeah, that's what's best for America. Seriously, fuck you Powell.
- Doubtme 4y ago
  woah we cant get too political so fast here on good ol HN. gotta think about the billionaires first before you respond. the audacity.
  - kelseyfrog 4y ago
    We have to rationally debate this to death which means to present both sides as having equally valid arguments until we grow tired and give up so that nothing changes. Really though, once I hear the "Actually, this is good for wage earners" argument, I know which side has won.
    - Doubtme 4y ago
      Of course its good for people who have to work. No need for a family. Or kids. Think of all the productivity and amazing work you'll create!
  - chrisco255 4y ago
    It's not just the billionaires that are going to be affected by this. Homeowners, 401K retirees, state pensions, etc, all depend on asset prices trending upward. All of this QE policy started with Bernanke in the wake of the '08 GFC. Right now the Fed has to choose between raising rates high enough to stop inflation (probably double digits) and in the process cause a depression in all asset markets or tepidly walk back the tightening and embrace stagflation (in which case, asset markets will go down in real terms, but not in nominal terms). Either way, I believe we are near the end (<10 years) of the line for the USD reserve fiat regime.
jeffbee 4y ago
It's not an unreasonable goal. Keeping wages down, and domestic prices down, is a good way to build a strong export economy. That's been Germany's approach for a long time.
- readthenotes1 4y ago
  It is an entirely unreasonable goal if your stakeholders are the citizens of the country for which you are manipulating the economy. You should want high wages and productive workers, domestic production to help ensure fewer supply shocks from an unstable international environment, etc
  - jeffbee 4y ago
    High wages are not a goal in themselves. High wages with high cost of living is no better than low wages with low cost of living.
  - colinmhayes 4y ago
    High wages equals high costs if you go for protectionism or accelerated offshoring leading to unemployment if you don’t. There’s no magic wand here, everything is a trade off.
- landemva 4y ago
  German prices and wages are not low. I worked there. There are other reasons for Germany's export strength.
aceon48 4y ago
The fed was created for the banks, not the people. It’s the lender of last resort, to provide backstops and bailouts to banks, owned by banks. The employment mandate of the Fed wasn’t added until much, much later
supramouse 4y ago
suicidal plan, by the time it works the nation will be overrun with violence and crime
manholio 4y ago
It would seem he got it exactly in reverse: the vacancies are up because wages are too low compared to the demands of the labor force which is still available, those people prefer to retire/have a baby/a sabbatical etc. etc. instead of working, because the price point being offered for their time is not attractive. Reducing wages will not solve this problem, but exacerbate it. What he's actually doing by increasing interest rates is reducing agregate demand, price action goes down, labor demand and vacancies drop and consequently businesses can pay lower wages without fear of losing employees. So the interest hike is a direct action against inflation while the wage drop is a side effect, not the intended mechanism of action. Inflation can be controlled via interest rates even if, say for contractual or legal reasons, wages stay up. Unlike the case of a recession - that is prolonged by inflexible wages on the way down.
crymer11 4y ago
So wages shouldn’t be driven by demand and supply on the market? Seems pretty anti-capitalist, no?
cs702 4y ago
Hogwash. The Fed can do only three things: (1) raise or lower the short term interest rates it charges financial institutions when they borrow from the Fed, (2) raise or lower the short term interest rates it pays financial institutions when they park money with the Fed, and (3) buy and sell US treasury and mortgage agency bonds in the open market. And the Fed does these things to ensure financial and monetary stability. The OP strikes me as an ideologically driven piece that takes a few quotes from Powell completely out of context and manipulates them to fit a narrative that makes no sense whatsoever given what the Fed is (a central bank) and what it can do (change some rates it pays/charges and trade some government and agency bonds). To the mods: consider removing the OP. I doubt it fits the HN guidelines.
- josh2600 4y ago
  Does this also include the whole buying toxic assets thing? Not sure where that fits in your 3 options, but it’s definitely something they’ve been doing, to the tune of trillions of dollars.
  - cs702 4y ago
    Anyone can see the current composition of the Fed's balance at https://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm https://www.federalreserve.gov/monetarypolicy/bst_fedsbalanc... -- the latest balance sheet is here: https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1 https://www.federalreserve.gov/releases/h41/current/h41.htm#... As anyone can easily confirm, US treasury bonds and agency-backed bonds constitute the vast majority of the ~$9T owned by the Fed today. During the global financial crisis, I believe the Fed was given permission (by the executive and legislative branches) to purchase other kinds of bonds, so it coulld maintain financial and monetary stability.
    - bradleyjg 4y ago
      I think there was a fallen angel fund at the start of Covid (corporates that had been highly rated but lost those ratings during the brief crash before the bubble).
jmyeet 4y ago
Of course it is. The American government exists as a tool to protect the capital owning class and the capital they own. Foreign policy is never about "spreading democracy". It's about extending US interests. We have a system that demands exxponential growth for the capital owning class. The workers that make that system possible do not get to share in the proceeds of their labour because that comes at the cost of the growth the system demands, which is why for 40 years we had basically no real increase in wages despite massive increases in productivitiy. For anyone confused about what the Fed can do here is to raise interest rates to increase unemployment to destroy the negotiating power of working people. Your existence has a budget shortfall built into it. Housing is expensive by design. Crippling student debt is by design. Medical debt is by design. This budget shortfall keeps you working and compliant. The only counter to this is labor organization. This system is unsustainable. Just like an algal bloom eventually starves itself and dies out, squeezing out every limited dollar you can from people ultimately robs them of the purchasing power to become a customer.
- howmayiannoyyou 4y ago
  > The American government exists as a tool to protect the capital owning class and the capital they own. Wrong. Just totally false. The USGOV exists to persist if you want to be cynical. Persisting in that context means avoiding social unrest that prevents electoral defeat and subsequent legislations that eliminates good paying bureaucratic jobs, and that reduces government spending (thereby reducing income of businesses that rely on USGOV spending). In sum, the USGOV is not shy about cutting the nuts off the "capital owning class" and its doing that right now with higher interest rates, higher taxes, more regulation & declining asset prices.
  - onlyrealcuzzo 4y ago
    > In sum, the USGOV is not shy about cutting the nuts off the "capital owning class" and its doing that right now with higher interest rates, higher taxes, more regulation & declining asset prices. When did Federal income tax go up? REALLY rich people don't have income - they have capital gains - that's not going up at all. Asset prices are down 15% from being up 50% - they're still up higher than average from the beginning of Covid. I imagine they will still go lower - but my crystal ball rarely works. Either way, the wealthy are doing just fine.
A4ET8a8uTh0 4y ago
I know it is a radical thought, but, and I know I am dreaming here, but isn't there a solution that would hurt everyone and not just the ones, who are least able to protect themselves from what is clearly coming?
RspecMAuthortah 4y ago
I think Fed lost any credibility it had left after Greenspan. Now it's just a steep slide down. I mean, rates should have been raised in 2011. Remember when Powell tried this whole saga he is trying to do now back in 2018, there was a repo market shock and they had to backtrack. There is no way Fed can maintain its dual mandate of maximizing unemployment and keeping the inflation low. Because right now the US economy is about to enter a recession in response to a 0.75% interest rate hike so far, which is far less than what we need to do to curve inflation of 8%. A recession certainly means loss of jobs and there goes their dual mandate. There is no soft landing here as they are aiming hard, just as a year ago the inflation was not transitory yet they kept saying it. If a Fed agency clearly does not satisfy its mandate that it was set out for, then what is the process of ending it? Can the public bring a Supreme Court case against the validity and thus force congress to dissolve? I mean we can't surely expect our incompetent representatives of congress to force any action when there is a revolving door between their sponsors like Citadel/Goldman/Pimco and Fed officials they advise and appoint.
vishnugupta 4y ago
By mid last year it was clearly evident on the ground that inflation was going through the roof. However we had "experts" and economists claiming otherwise. They first denied it altogether; then said it was transitory; and when the data came in (by which time it was already too late) they said it doesn't hurt the poor as much. Only by Nov/Dec 2021 fed realised it had no option but to raise the rates and began messaging its intent. Fed delayed this by at least 2 quarters IMO. Now we are seeing the full impact of it.
seizethecheese 4y ago
Can we change the link to the actual transcript? The linked article is a histrionic, loaded write up. https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11651696613 https://www.wsj.com/articles/transcript-fed-chief-powells-po...
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rossdavidh 4y ago
So, I do think it is good for wages to go up, especially at the low end, but I notice that every time they directly quoted Jerome Powell, it sounded way more reasonable than their summaries in between those quotes. It has long been orthodox policy that wages should not rise faster than productivity. We are seeing the reason for this right now: when they do, then inflation rises faster than wages (or profits). If, as the article asserts, inflation were caused by "corporate monopolies", then we would see the least inflation in markets like housing, or equities, or grain, where there are many producers to choose from. Instead, these are three of the highest-inflation sectors lately. None of this is meant to suggest that the Fed is doing everything correctly or well, but there are good and valid reasons to be concerned when wages rise faster than productivity, or when there are many job openings for each applicant, because neither of those situations actually results in us (the non-corporations) being better off.
- onlyrealcuzzo 4y ago
  Inflation was not exceeding corporate profits. If it's good that wages raise slower than productivity - that means it's good that workers always get a smaller share of the pie. This, I do not think, is a universally agreed upon opinion.
  - rossdavidh 4y ago
    True, but I think the target should be that wages rise at the same rate (over the medium term) as productivity. If wages rise higher for a year, it's not an issue. But inflation (including wages) has been rising for well over a year now. Now, it is also true that if wages rise slower than productivity, that should also concern the Fed, and they haven't been as concerned as they should have. However, given that they switched to a positive (2%) rate of inflation for their target a few years back, they are at least acknowledging the problem. But I agree that wages rising slower than productivity ought to be acted on as well.
    - cudgy 4y ago
      This assumes that current ratio of wages per unit of productivity is in balance. Many would argue that wages are too low for many jobs relative to productivity. The Fed consciously takes action to keep that poor ratio for workers the status quo ante.
MAGZine 4y ago
You can read Powell's remarks here: https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11651696613 https://www.wsj.com/articles/transcript-fed-chief-powells-po... Contrary to this wonderfully editorialized piece, Powell is talking about wage growth not wages themselves. Let me explain his remarks a bit more (views not my own, but let me try and more accurate reflect his remarks). Hiring and wages are increasing sharply/rapidly because the economy is running too hot. Everyone is trying to hire, but there are few/no people to hire. Everyone is trying to hire more because money is flowing and demand is high. The idea Powell has is: you need to temper demand. Reduced demand means you need less supply, which means fewer vacant jobs. You can still do this at full employment. Fewer jobs means that employers do not need to "overbid" (objection! subjective!) for labour. You'll still pay a bit of a premium, but not as much because your labour shortage isn't so urgent. Without blowing out the labour budget so badly, prices won't increase so quickly, and so inflation tempers. Powell's of the opinion that the lowest earners need stability more than they need rapidly increased wages. Not because they shouldn't make more, but because low-income households are more sensitive to price variability (prefer stability), and he doesn't want to see those increase wages simply feed into increased prices. in fact, Powell talks about how he wants long, expansionary runs and not short-run inflationary runs. Expansion of the economy is good. Inflation is not. It diminishes purchasing power of everyday people, especially those not heavily into inflation-riding securities. that being said, I think it's a fair criticism that worker wages are not the only component here, as the economist points out. Corporate America is pining for maximum ROI, for both executives and shareholders.
- MAGZine 4y ago
  As a sidebar, you probably can see this already happening inside tech. Which companies do you know have frozen hiring? What will it do to your job prospects?
- exceptione 4y ago
  > Without blowing out the labour budget so badly, prices won't increase so quickly, and so inflation tempers. In Europe inflation seems to be primarily been driven by supply shortages, and the rise of food and fuel prices later on. We don´t discuss China often, but they are shutting of complete cities at this moment, driven by the zero-covid policy from Xi (who has committed himself politically to it). This really results in huge production/shipping delays. This comes on top of all the other disruption of supply chains we had in the past covid years. Normally you rise the interest rate to tamper demand. But one could argue that we have a very special case here at hand, where the problem is on the supply side of things rather than the demand side. The US might be a bit different here compared to Europe, as the former did inject more money directly into the economy than the latter. But it would be good to investigate what part of the current inflation is driven by too much demand vs which by a shortage of supply. > Not because they shouldn't make more, but because low-income households are more sensitive to price variability (prefer stability), Indeed, a Central Bank's main purpose is to provide price stability, and to allow for just a little bit of inflation to keep things going.
civilized 4y ago
Full unpaywalled transcript of Powell's conference: https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11651696613 https://www.wsj.com/articles/transcript-fed-chief-powells-po... Relevant section: Q: Your level of confidence that you can slow hiring without pushing the economy into a downturn. MR. POWELL: So I guess I would say it this way. It’s—there’s a path. There’s a path by which we would be able to have demand moderate in the labor market and have—therefore have vacancies come down without unemployment going up, because vacancies are at such an extraordinarily high level. There are 1.9 vacancies for every unemployed person; 11½ million vacancies, 6 million unemployed people. So—and we haven’t been in that place on the vacancy—you know, through the vacancy/unemployed curve, the Beveridge curve. We haven’t been at that sort of level of a ratio in the modern era. So in principle, it seems as though, by moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially. So there’s a path to that. Now, I would say I think we have a good chance to have a soft or softish landing, or outcome, if you will. And I’ll give you a couple of reasons for that. One is, households and businesses are in very strong financial shape. You’re looking at, you know, excess savings on balance sheets; excess in the sense that they’re substantially larger than the prior trend. Businesses are in good financial shape. The labor market is, as I mentioned, very, very strong. And so it doesn’t seem to be anywhere close to a downturn. Therefore, the economy is strong and is well positioned to handle tighter monetary policy. So—but I’ll say I do expect that this will be very challenging. It’s not going to be easy. And it may well depend, of course, on events that are not under our control. But our job is to use our tools to try to achieve that outcome, and that’s what we’re going to do.
KennyBlanken 4y ago
Jerome Powell was on Marketplace (the public radio show) and discussed this with Kai Ryssdal. It's worth a listen if you'd like to get a layman's idea of what's going on, how Powell is trying to act, and why...direct from the horse's mouth. My impression from listening to it about two weks ago was that Powell thinks a strong labor market is just fine, but things are accelerating far too fast and that's not sustainable. I could be wrong; again, it's been two weeks. https://www.marketplace.org/shows/marketplace/exclusive-jerome-powell-on-inflation-soft-landings-and-the-federal-reserve https://www.marketplace.org/shows/marketplace/exclusive-jero... Multipolarista is the new one-man show of Benjamin Norton, who used to be an editor of Grayzone until barely a few months ago. Grayzone was essentially a mouthpiece for Kremlin and CCP talking points and conspiracies, and has apologized for China's ethnic cleansing: https://en.wikipedia.org/wiki/The_Grayzone https://en.wikipedia.org/wiki/The_Grayzone It is left as an exercise to the reader why he would leave Grayzone right as economic sanctions kicked in against Russia. If you want actual informative takes on the situation, I suggest reputable outlets with journalistic standards and editorial review. The Economist, the NY Times, the WaPo, etc...and a friendly reminder that there is a difference between reporting, analysis, and opinion - even on the same site. I found pieces in the Economist both for and against rate hikes, for example. Accessing these outlets, even if they're paywalled, is likely easy even digitally, from your public library.
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wolpoli 4y ago
It isn't surprising that the central bank wants to get unemployment higher, to keep increases in wage low. This is explained in depth in introductory economic courses. What's surprising is that they believe their lever is precise enough to get the number of jobs openings lower without increasing the unemployment rate. He is outlining a best case scenario that would be difficult to achieve under normal situation, let alone that we are just coming out of negative demand shock straight into a negative supply shock, with inflation running above target already. The central bank let inflation ran a little too hot during the negative demand shock, and inflation expectation has gotten unanchored, and I am not sure if the goldilocks pathway even exist today.
kvathupo 4y ago
So, this article is very evidently leaning towards a Left, anti-imperialist view by calling Ukraine a "proxy war" and the comments by Hudson. Not necessarily a "bad" thing; after all, it is a popular sentiment [1]. Two points: 1. As a Democrat, I frankly don't have faith in the seemingly nonsensical rationale behind much of this administration's fiscal and monetary policy with respect to stagflation (calling for increased taxation on corporations [2]). 2. In reference to Hudson's comments that oil companies are refusing to pump more oil to retain profits, perhaps I can provide some insight: I made some money off WTI oil, and followed the issue for a bit. In short, there's no economic incentive in pumping more oil when domestic production has significantly decreased in recent years due to legislation and declining oil prices. So why restart drilling at closed facilities that'll likely close again due a shift towards more environmentally sustainable energy? Even were they to do so, the period from decision-to-drill to oil-in-a-bucket is at least 6 months [3]. P.S. Amusingly, Biden argues he __wouldn't__ work to depress wages to fight inflation, contrary to the Fed [4]. [1] - https://www.axios.com/2022/05/05/world-not-united-ukraine-response-isolate-russia https://www.axios.com/2022/05/05/world-not-united-ukraine-re... [2] - https://www.cnn.com/2022/05/14/business/jeff-bezos-joe-biden-twitter-inflation/index.html https://www.cnn.com/2022/05/14/business/jeff-bezos-joe-biden... [3] - https://oilprice.com/Latest-Energy-News/World-News/Shale-CEOs-Meet-With-US-Officials-Amid-Surging-Oil-Prices.html https://oilprice.com/Latest-Energy-News/World-News/Shale-CEO... [4] - https://www.npr.org/2022/05/10/1097891180/biden-names-combatting-inflation-and-rising-costs-as-his-top-domestic-priority https://www.npr.org/2022/05/10/1097891180/biden-names-combat...
- KennyBlanken 4y ago
  Stop trying to portray Norton as "Left". He's a CCP/Kremlin mouthpiece and Uyghur genocide denialist: https://en.wikipedia.org/wiki/The_Grayzone https://en.wikipedia.org/wiki/The_Grayzone The Ukraine-Russia war is an western-imperialism "proxy war"? Putin is trying to reunify, and has before and is now again engaged in ethnic cleansing and wide-scale war atrocities to do so. Not surprisingly, most of the world takes an extremely dim view of this. The only countries not behind economic sanctions against Russia are almost exclusively countries which are heavily reliant upon Russia's wheat, oil, and/or fertilizer lest they face rioting, starving citizenry within months. I don't particularly blame those leaders for prioritizing keeping their citizens from starving - but pointing to people who will starve if they piss off Putin and saying "see, the world isn't unified in this proxy war" is either extremely naive or very disingenuous.
Vladimof 4y ago
Nice plan... get inflation up, wages down.... who the hell voted these people in power...

99 points by ushakov 4y ago

zja 4y ago

I'm reminded of Chomsky's comments on Alan Greenspan saying the exact same thing when he was chairman. https://www.youtube.com/watch?v=sy5eNIyzKqM https://www.youtube.com/watch?v=sy5eNIyzKqM

phendrenad2 4y ago

How exactly do they intend to accomplish this? With a wave of a magic wand? Maybe they can give tax cuts to companies that cut wages? Maybe they can tax companies that pay employees more than $x/year. These seem like bad ideas.

rektide 4y ago
If they manage to close/ruin enough businesses, there'll be a lot more people looking for work.
- onlyrealcuzzo 4y ago
  There's more than enough bad businesses that only exist because the price of debt is less than inflation thanks to the Fed. As soon as they stop egregiously manipulating the price of debt - those businesses will fall like dominoes.
krona 4y ago
Unemployment.
gadflyinyoureye 4y ago
Taxes could work. Maybe they will push to create a national health system. The poor would go from getting 10-25% of their yearly income from the Feds via various tax give awaysa to actually paying 10-15% of their income. That would cool the economy as you pass higher taxes further up the progressive tax chain. Most middle class members would probably end up paying $10k per year in new taxes. They could also pass a carbon tax. Energy costs would double or triple. Suddenly the average home would pay $1800 per month to keep their food from spoiling. Essentially lock large amounts of money into required bills. Edit: even if 1800 is on the high end, the cost shock of taking an apartment with $250 per month to 500-700 will still put a huge cooling effect on inflation. And yes, large portions of the United States need A/C and more will to cope with climate change. Also think of the cost to businesses of all sizes. Keeping offices, showrooms, and other such buildings will limit hiring and pay raises.
- BiteCode_dev 4y ago
  A $1800 energy bill would supposedly be the triple of a $600 energy bill that people pay for their fridge ? I got a fridge, a freezer, a giant screen a phone, a dyson, an electrical water heater and a computer and various electrical cooking appliances. I pay $60 a month. Who pays $600? Is that a common price in the US?
  - leetcrew 4y ago
    I dunno about $600. $200-300 was a typical bill for an older detached 3BR when I was in college. split several ways of course. it wouldn't surprise me if people with significantly larger (and poorly insulated) houses paid a lot more, but that wouldn't be common. AFAIK, the vast majority of an energy bill typically comes from heating and cooling. appliances don't contribute that much. in my current 1BR, with great insulation and neighbors above, below, and on both sides, I too pay about $60 for utilities.
  - geoduck14 4y ago
    Do you have an air-conditioner?
    - BiteCode_dev 4y ago
      No, however heating is $200 if electrical. But I work from home, so it's always on high temps, unlike for most people. Also, that's still far from $600, that's not anymore "preventing your food to spoil", and that's only a few months a year. A/C as well, you don't usually use it in december in most parts of the US. So yeah, I find this number surprising for a very rich country that should have great infrastructures.
  - hindsightbias 4y ago
    For an older McMansion in TX or FL, not far out of line.
arcticbull 4y ago
The Federal Reserve doesn't control fiscal policy - only monetary policy. They don't set tax rates. They only control the money supply. They are able to reduce wages by increasing interest rates. Businesses have to spend more money servicing debt - and can't obtain more debt as inexpensively - so they can't afford to pay workers the same rates.
- landemva 4y ago
  >> They don't set tax rates. Federal Reserve's FOMC claims to set short term interest rates. https://www.federalreserve.gov/monetarypolicy/openmarket.htm https://www.federalreserve.gov/monetarypolicy/openmarket.htm
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stu2b50 4y ago
Interest rates (if capital is harder for companies to find they will hire less, pay less, and maybe even layoff folks because... they have less money on hand) and more government bonds (private entities putting their money into bonds removes dollars from the economy)

freedomben 4y ago

I may have missed it in the article, but what are some of their ideas for accomplishing this? And do they want to give the entire working class a haircut, or is this targeted at certain industries or levels, such as low-skill manufacturing, or are they also talking about doctors and lawyers?

britch 4y ago
As I understand it the idea is that raising interest rates makes cash "expensive" to incentive businesses to reduce immediate costs--lay people off. Hold on to the value-holding assets (property), get rid of the immediate costly thing (primarily wages). More people looking for work means people willing to work for less. It's imprecise Likely people who are "easy to replace" get the axe first, but that doesn't mean others don't get affected as well.
llimos 4y ago
I can tell you one group they're not talking about: People who work at the Federal Reserve.
MAGZine 4y ago
This is a really trash article. It's really biased--the economist they interview is part of this group: https://internationalmanifesto.org/ https://internationalmanifesto.org/ Not to attack his credentials, but I think the website picked him to comment on things for a reason. Clicking around the website has a bunch of other questionable material, at least from a neutrality perspective. It is an interesting perspective nevertheless, but not without bias. That said, i think they removed some important context from the fed's position. What the chair of the fed is saying is that they want to moderate demand. Less demand means fewer open positions at companies. Fewer open positions means the labour market is not so tight, and so not such an (increasingly) high premium needs to be paid for labour. Without having to blow out the budget to hire people because you're so desperate, you don't have as raise prices so much to compensate. He's not talking about getting companies to cut wages. He wants to cut wage growth because it feeds into (in his opinion, mind you) spiraling wages. You can read the original transcription here: https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11651696613 https://www.wsj.com/articles/transcript-fed-chief-powells-po... To tangentially answer your question: they want to do this because high inflation impacts the working class the most. They need price stability. I don't necessarily disagree mind you that corporate greed is fueling inflation more than minimum wage, but it's probably a both thing versus one or the other.

hitpointdrew 4y ago

The only realistic way the government could even attempt to accomplish this in any practical way is if they implemented a UBI.

vinyl7 4y ago
That won't do anything because that creates a price floor, same way that minimum wage creates a price floor. The real way to do it is to remove the price floor
jimbob45 4y ago
Quite the opposite, no? Only by removing unemployment benefits and welfare payments could the general population be coerced into returning to the workforce. However, I think both of us would agree that such a strategy would be one for Congress to implement, not the Fed. Edit: I'm not advocating for or against such a strategy.
- donthellbanme 4y ago
- nightfly 4y ago
  Its old people that left the workforce, they aren't coming back.
StanislavPetrov 4y ago
They could import millions of foreign low-wage workers with a defacto open borders policy. And they are.
chrisco255 4y ago
UBI would cause unbelievable inflation. The inflation we are seeing is a result of money printed and distributed over the last two years that is not backed by productive output. UBI is a magic wand fantasy.
jjtheblunt 4y ago
Why do you think that, numerically?

newaccount2021 4y ago

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pjc50 4y ago

This has been orthodox economic policy for decades. There's two usual prongs: - put up interest rates. This raises the cost of business credit, and at the margin, puts people out of work, until employment reaches the "non-accelerating rate" (NAIRU) - break labour power by legislating against unions, breaking up state-owned businesses into the private sector, and promoting the Uber-style "independent contractor" model where people aren't employees The public may be exposed to rising food and fuel costs, but if they can't demand higher wages that can't feed forward into higher prices and a wage-price spiral. Yes, this involves a lot of worsening of living conditions.

arcticbull 4y ago
I agree with you broadly. I think it's important to consider though that what we have right now isn't a demand crisis but a supply shortage. There are, thanks to all sorts of reasons (the fallout of COVID lockdowns from 2020-2021, supply chains, war in Ukraine between an oil exporter and a grain exporter, COVID zero in China) not enough things available for everyone to buy. The amount of money folks have and are being paid - and are demanding at new jobs - cannot turn into the same quantity of goods now as it would have two years ago. Hence rising prices. One of two things can happen: - We can increase supply of goods, fix supply chains, infrastructure, bring in more labor, etc. - We can decrease demand by reducing the amount of money in the system (increase interest rates, reduce wages). But like, one or both of these things have to continue to happen until the demand for goods and services matches the available supply of goods and services. Yes, this may lead to worsening conditions but that's because we don't have enough stuff for everyone to get what they want right now.
- ItsMonkk 4y ago
  It's mostly a demand shock, not a supply shock[0]. The supply chains are busted mostly because of unprecedented demands. But considering that most normal people spend just about all of their money each month, and with personal savings rates below where they were before CO-VID and credit levels rising, either inflation ends by itself or the demand as it turns out, is coming from the wealthy looking to shelter their cash in safe commodities during the recession and away from bubbled assets. [0]: https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-supply-shock-and-its-everywhere https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-...

gsibble 4y ago

Of course. We can't raise interest rates because we need to protect asset prices for the rich and don't want to pay more interest at the government level or on the $8T borrowed in the last decade for stock repurchases by the Fortune 500.....so let's pay workers less. Yeah, that's what's best for America. Seriously, fuck you Powell.

Doubtme 4y ago
woah we cant get too political so fast here on good ol HN. gotta think about the billionaires first before you respond. the audacity.
- kelseyfrog 4y ago
  We have to rationally debate this to death which means to present both sides as having equally valid arguments until we grow tired and give up so that nothing changes. Really though, once I hear the "Actually, this is good for wage earners" argument, I know which side has won.
  - Doubtme 4y ago
    Of course its good for people who have to work. No need for a family. Or kids. Think of all the productivity and amazing work you'll create!
- chrisco255 4y ago
  It's not just the billionaires that are going to be affected by this. Homeowners, 401K retirees, state pensions, etc, all depend on asset prices trending upward. All of this QE policy started with Bernanke in the wake of the '08 GFC. Right now the Fed has to choose between raising rates high enough to stop inflation (probably double digits) and in the process cause a depression in all asset markets or tepidly walk back the tightening and embrace stagflation (in which case, asset markets will go down in real terms, but not in nominal terms). Either way, I believe we are near the end (<10 years) of the line for the USD reserve fiat regime.

jeffbee 4y ago

It's not an unreasonable goal. Keeping wages down, and domestic prices down, is a good way to build a strong export economy. That's been Germany's approach for a long time.

readthenotes1 4y ago
It is an entirely unreasonable goal if your stakeholders are the citizens of the country for which you are manipulating the economy. You should want high wages and productive workers, domestic production to help ensure fewer supply shocks from an unstable international environment, etc
- jeffbee 4y ago
  High wages are not a goal in themselves. High wages with high cost of living is no better than low wages with low cost of living.
- colinmhayes 4y ago
  High wages equals high costs if you go for protectionism or accelerated offshoring leading to unemployment if you don’t. There’s no magic wand here, everything is a trade off.
landemva 4y ago
German prices and wages are not low. I worked there. There are other reasons for Germany's export strength.

aceon48 4y ago

The fed was created for the banks, not the people. It’s the lender of last resort, to provide backstops and bailouts to banks, owned by banks. The employment mandate of the Fed wasn’t added until much, much later

supramouse 4y ago

suicidal plan, by the time it works the nation will be overrun with violence and crime

manholio 4y ago

It would seem he got it exactly in reverse: the vacancies are up because wages are too low compared to the demands of the labor force which is still available, those people prefer to retire/have a baby/a sabbatical etc. etc. instead of working, because the price point being offered for their time is not attractive. Reducing wages will not solve this problem, but exacerbate it. What he's actually doing by increasing interest rates is reducing agregate demand, price action goes down, labor demand and vacancies drop and consequently businesses can pay lower wages without fear of losing employees. So the interest hike is a direct action against inflation while the wage drop is a side effect, not the intended mechanism of action. Inflation can be controlled via interest rates even if, say for contractual or legal reasons, wages stay up. Unlike the case of a recession - that is prolonged by inflexible wages on the way down.

crymer11 4y ago

So wages shouldn’t be driven by demand and supply on the market? Seems pretty anti-capitalist, no?

cs702 4y ago

Hogwash. The Fed can do only three things: (1) raise or lower the short term interest rates it charges financial institutions when they borrow from the Fed, (2) raise or lower the short term interest rates it pays financial institutions when they park money with the Fed, and (3) buy and sell US treasury and mortgage agency bonds in the open market. And the Fed does these things to ensure financial and monetary stability. The OP strikes me as an ideologically driven piece that takes a few quotes from Powell completely out of context and manipulates them to fit a narrative that makes no sense whatsoever given what the Fed is (a central bank) and what it can do (change some rates it pays/charges and trade some government and agency bonds). To the mods: consider removing the OP. I doubt it fits the HN guidelines.

josh2600 4y ago
Does this also include the whole buying toxic assets thing? Not sure where that fits in your 3 options, but it’s definitely something they’ve been doing, to the tune of trillions of dollars.
- cs702 4y ago
  Anyone can see the current composition of the Fed's balance at https://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm https://www.federalreserve.gov/monetarypolicy/bst_fedsbalanc... -- the latest balance sheet is here: https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1 https://www.federalreserve.gov/releases/h41/current/h41.htm#... As anyone can easily confirm, US treasury bonds and agency-backed bonds constitute the vast majority of the ~$9T owned by the Fed today. During the global financial crisis, I believe the Fed was given permission (by the executive and legislative branches) to purchase other kinds of bonds, so it coulld maintain financial and monetary stability.
  - bradleyjg 4y ago
    I think there was a fallen angel fund at the start of Covid (corporates that had been highly rated but lost those ratings during the brief crash before the bubble).

jmyeet 4y ago

Of course it is. The American government exists as a tool to protect the capital owning class and the capital they own. Foreign policy is never about "spreading democracy". It's about extending US interests. We have a system that demands exxponential growth for the capital owning class. The workers that make that system possible do not get to share in the proceeds of their labour because that comes at the cost of the growth the system demands, which is why for 40 years we had basically no real increase in wages despite massive increases in productivitiy. For anyone confused about what the Fed can do here is to raise interest rates to increase unemployment to destroy the negotiating power of working people. Your existence has a budget shortfall built into it. Housing is expensive by design. Crippling student debt is by design. Medical debt is by design. This budget shortfall keeps you working and compliant. The only counter to this is labor organization. This system is unsustainable. Just like an algal bloom eventually starves itself and dies out, squeezing out every limited dollar you can from people ultimately robs them of the purchasing power to become a customer.

howmayiannoyyou 4y ago
> The American government exists as a tool to protect the capital owning class and the capital they own. Wrong. Just totally false. The USGOV exists to persist if you want to be cynical. Persisting in that context means avoiding social unrest that prevents electoral defeat and subsequent legislations that eliminates good paying bureaucratic jobs, and that reduces government spending (thereby reducing income of businesses that rely on USGOV spending). In sum, the USGOV is not shy about cutting the nuts off the "capital owning class" and its doing that right now with higher interest rates, higher taxes, more regulation & declining asset prices.
- onlyrealcuzzo 4y ago
  > In sum, the USGOV is not shy about cutting the nuts off the "capital owning class" and its doing that right now with higher interest rates, higher taxes, more regulation & declining asset prices. When did Federal income tax go up? REALLY rich people don't have income - they have capital gains - that's not going up at all. Asset prices are down 15% from being up 50% - they're still up higher than average from the beginning of Covid. I imagine they will still go lower - but my crystal ball rarely works. Either way, the wealthy are doing just fine.

A4ET8a8uTh0 4y ago

I know it is a radical thought, but, and I know I am dreaming here, but isn't there a solution that would hurt everyone and not just the ones, who are least able to protect themselves from what is clearly coming?

RspecMAuthortah 4y ago

I think Fed lost any credibility it had left after Greenspan. Now it's just a steep slide down. I mean, rates should have been raised in 2011. Remember when Powell tried this whole saga he is trying to do now back in 2018, there was a repo market shock and they had to backtrack. There is no way Fed can maintain its dual mandate of maximizing unemployment and keeping the inflation low. Because right now the US economy is about to enter a recession in response to a 0.75% interest rate hike so far, which is far less than what we need to do to curve inflation of 8%. A recession certainly means loss of jobs and there goes their dual mandate. There is no soft landing here as they are aiming hard, just as a year ago the inflation was not transitory yet they kept saying it. If a Fed agency clearly does not satisfy its mandate that it was set out for, then what is the process of ending it? Can the public bring a Supreme Court case against the validity and thus force congress to dissolve? I mean we can't surely expect our incompetent representatives of congress to force any action when there is a revolving door between their sponsors like Citadel/Goldman/Pimco and Fed officials they advise and appoint.

vishnugupta 4y ago

By mid last year it was clearly evident on the ground that inflation was going through the roof. However we had "experts" and economists claiming otherwise. They first denied it altogether; then said it was transitory; and when the data came in (by which time it was already too late) they said it doesn't hurt the poor as much. Only by Nov/Dec 2021 fed realised it had no option but to raise the rates and began messaging its intent. Fed delayed this by at least 2 quarters IMO. Now we are seeing the full impact of it.

seizethecheese 4y ago

Can we change the link to the actual transcript? The linked article is a histrionic, loaded write up. https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11651696613 https://www.wsj.com/articles/transcript-fed-chief-powells-po...

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rossdavidh 4y ago

So, I do think it is good for wages to go up, especially at the low end, but I notice that every time they directly quoted Jerome Powell, it sounded way more reasonable than their summaries in between those quotes. It has long been orthodox policy that wages should not rise faster than productivity. We are seeing the reason for this right now: when they do, then inflation rises faster than wages (or profits). If, as the article asserts, inflation were caused by "corporate monopolies", then we would see the least inflation in markets like housing, or equities, or grain, where there are many producers to choose from. Instead, these are three of the highest-inflation sectors lately. None of this is meant to suggest that the Fed is doing everything correctly or well, but there are good and valid reasons to be concerned when wages rise faster than productivity, or when there are many job openings for each applicant, because neither of those situations actually results in us (the non-corporations) being better off.

onlyrealcuzzo 4y ago
Inflation was not exceeding corporate profits. If it's good that wages raise slower than productivity - that means it's good that workers always get a smaller share of the pie. This, I do not think, is a universally agreed upon opinion.
- rossdavidh 4y ago
  True, but I think the target should be that wages rise at the same rate (over the medium term) as productivity. If wages rise higher for a year, it's not an issue. But inflation (including wages) has been rising for well over a year now. Now, it is also true that if wages rise slower than productivity, that should also concern the Fed, and they haven't been as concerned as they should have. However, given that they switched to a positive (2%) rate of inflation for their target a few years back, they are at least acknowledging the problem. But I agree that wages rising slower than productivity ought to be acted on as well.
  - cudgy 4y ago
    This assumes that current ratio of wages per unit of productivity is in balance. Many would argue that wages are too low for many jobs relative to productivity. The Fed consciously takes action to keep that poor ratio for workers the status quo ante.

MAGZine 4y ago

You can read Powell's remarks here: https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11651696613 https://www.wsj.com/articles/transcript-fed-chief-powells-po... Contrary to this wonderfully editorialized piece, Powell is talking about wage growth not wages themselves. Let me explain his remarks a bit more (views not my own, but let me try and more accurate reflect his remarks). Hiring and wages are increasing sharply/rapidly because the economy is running too hot. Everyone is trying to hire, but there are few/no people to hire. Everyone is trying to hire more because money is flowing and demand is high. The idea Powell has is: you need to temper demand. Reduced demand means you need less supply, which means fewer vacant jobs. You can still do this at full employment. Fewer jobs means that employers do not need to "overbid" (objection! subjective!) for labour. You'll still pay a bit of a premium, but not as much because your labour shortage isn't so urgent. Without blowing out the labour budget so badly, prices won't increase so quickly, and so inflation tempers. Powell's of the opinion that the lowest earners need stability more than they need rapidly increased wages. Not because they shouldn't make more, but because low-income households are more sensitive to price variability (prefer stability), and he doesn't want to see those increase wages simply feed into increased prices. in fact, Powell talks about how he wants long, expansionary runs and not short-run inflationary runs. Expansion of the economy is good. Inflation is not. It diminishes purchasing power of everyday people, especially those not heavily into inflation-riding securities. that being said, I think it's a fair criticism that worker wages are not the only component here, as the economist points out. Corporate America is pining for maximum ROI, for both executives and shareholders.

MAGZine 4y ago
As a sidebar, you probably can see this already happening inside tech. Which companies do you know have frozen hiring? What will it do to your job prospects?
exceptione 4y ago
> Without blowing out the labour budget so badly, prices won't increase so quickly, and so inflation tempers. In Europe inflation seems to be primarily been driven by supply shortages, and the rise of food and fuel prices later on. We don´t discuss China often, but they are shutting of complete cities at this moment, driven by the zero-covid policy from Xi (who has committed himself politically to it). This really results in huge production/shipping delays. This comes on top of all the other disruption of supply chains we had in the past covid years. Normally you rise the interest rate to tamper demand. But one could argue that we have a very special case here at hand, where the problem is on the supply side of things rather than the demand side. The US might be a bit different here compared to Europe, as the former did inject more money directly into the economy than the latter. But it would be good to investigate what part of the current inflation is driven by too much demand vs which by a shortage of supply. > Not because they shouldn't make more, but because low-income households are more sensitive to price variability (prefer stability), Indeed, a Central Bank's main purpose is to provide price stability, and to allow for just a little bit of inflation to keep things going.

civilized 4y ago

Full unpaywalled transcript of Powell's conference: https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11651696613 https://www.wsj.com/articles/transcript-fed-chief-powells-po... Relevant section: Q: Your level of confidence that you can slow hiring without pushing the economy into a downturn. MR. POWELL: So I guess I would say it this way. It’s—there’s a path. There’s a path by which we would be able to have demand moderate in the labor market and have—therefore have vacancies come down without unemployment going up, because vacancies are at such an extraordinarily high level. There are 1.9 vacancies for every unemployed person; 11½ million vacancies, 6 million unemployed people. So—and we haven’t been in that place on the vacancy—you know, through the vacancy/unemployed curve, the Beveridge curve. We haven’t been at that sort of level of a ratio in the modern era. So in principle, it seems as though, by moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially. So there’s a path to that. Now, I would say I think we have a good chance to have a soft or softish landing, or outcome, if you will. And I’ll give you a couple of reasons for that. One is, households and businesses are in very strong financial shape. You’re looking at, you know, excess savings on balance sheets; excess in the sense that they’re substantially larger than the prior trend. Businesses are in good financial shape. The labor market is, as I mentioned, very, very strong. And so it doesn’t seem to be anywhere close to a downturn. Therefore, the economy is strong and is well positioned to handle tighter monetary policy. So—but I’ll say I do expect that this will be very challenging. It’s not going to be easy. And it may well depend, of course, on events that are not under our control. But our job is to use our tools to try to achieve that outcome, and that’s what we’re going to do.

KennyBlanken 4y ago

Jerome Powell was on Marketplace (the public radio show) and discussed this with Kai Ryssdal. It's worth a listen if you'd like to get a layman's idea of what's going on, how Powell is trying to act, and why...direct from the horse's mouth. My impression from listening to it about two weks ago was that Powell thinks a strong labor market is just fine, but things are accelerating far too fast and that's not sustainable. I could be wrong; again, it's been two weeks. https://www.marketplace.org/shows/marketplace/exclusive-jerome-powell-on-inflation-soft-landings-and-the-federal-reserve https://www.marketplace.org/shows/marketplace/exclusive-jero... Multipolarista is the new one-man show of Benjamin Norton, who used to be an editor of Grayzone until barely a few months ago. Grayzone was essentially a mouthpiece for Kremlin and CCP talking points and conspiracies, and has apologized for China's ethnic cleansing: https://en.wikipedia.org/wiki/The_Grayzone https://en.wikipedia.org/wiki/The_Grayzone It is left as an exercise to the reader why he would leave Grayzone right as economic sanctions kicked in against Russia. If you want actual informative takes on the situation, I suggest reputable outlets with journalistic standards and editorial review. The Economist, the NY Times, the WaPo, etc...and a friendly reminder that there is a difference between reporting, analysis, and opinion - even on the same site. I found pieces in the Economist both for and against rate hikes, for example. Accessing these outlets, even if they're paywalled, is likely easy even digitally, from your public library.

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wolpoli 4y ago

It isn't surprising that the central bank wants to get unemployment higher, to keep increases in wage low. This is explained in depth in introductory economic courses. What's surprising is that they believe their lever is precise enough to get the number of jobs openings lower without increasing the unemployment rate. He is outlining a best case scenario that would be difficult to achieve under normal situation, let alone that we are just coming out of negative demand shock straight into a negative supply shock, with inflation running above target already. The central bank let inflation ran a little too hot during the negative demand shock, and inflation expectation has gotten unanchored, and I am not sure if the goldilocks pathway even exist today.

kvathupo 4y ago

So, this article is very evidently leaning towards a Left, anti-imperialist view by calling Ukraine a "proxy war" and the comments by Hudson. Not necessarily a "bad" thing; after all, it is a popular sentiment [1]. Two points: 1. As a Democrat, I frankly don't have faith in the seemingly nonsensical rationale behind much of this administration's fiscal and monetary policy with respect to stagflation (calling for increased taxation on corporations [2]). 2. In reference to Hudson's comments that oil companies are refusing to pump more oil to retain profits, perhaps I can provide some insight: I made some money off WTI oil, and followed the issue for a bit. In short, there's no economic incentive in pumping more oil when domestic production has significantly decreased in recent years due to legislation and declining oil prices. So why restart drilling at closed facilities that'll likely close again due a shift towards more environmentally sustainable energy? Even were they to do so, the period from decision-to-drill to oil-in-a-bucket is at least 6 months [3]. P.S. Amusingly, Biden argues he __wouldn't__ work to depress wages to fight inflation, contrary to the Fed [4]. [1] - https://www.axios.com/2022/05/05/world-not-united-ukraine-response-isolate-russia https://www.axios.com/2022/05/05/world-not-united-ukraine-re... [2] - https://www.cnn.com/2022/05/14/business/jeff-bezos-joe-biden-twitter-inflation/index.html https://www.cnn.com/2022/05/14/business/jeff-bezos-joe-biden... [3] - https://oilprice.com/Latest-Energy-News/World-News/Shale-CEOs-Meet-With-US-Officials-Amid-Surging-Oil-Prices.html https://oilprice.com/Latest-Energy-News/World-News/Shale-CEO... [4] - https://www.npr.org/2022/05/10/1097891180/biden-names-combatting-inflation-and-rising-costs-as-his-top-domestic-priority https://www.npr.org/2022/05/10/1097891180/biden-names-combat...

KennyBlanken 4y ago
Stop trying to portray Norton as "Left". He's a CCP/Kremlin mouthpiece and Uyghur genocide denialist: https://en.wikipedia.org/wiki/The_Grayzone https://en.wikipedia.org/wiki/The_Grayzone The Ukraine-Russia war is an western-imperialism "proxy war"? Putin is trying to reunify, and has before and is now again engaged in ethnic cleansing and wide-scale war atrocities to do so. Not surprisingly, most of the world takes an extremely dim view of this. The only countries not behind economic sanctions against Russia are almost exclusively countries which are heavily reliant upon Russia's wheat, oil, and/or fertilizer lest they face rioting, starving citizenry within months. I don't particularly blame those leaders for prioritizing keeping their citizens from starving - but pointing to people who will starve if they piss off Putin and saying "see, the world isn't unified in this proxy war" is either extremely naive or very disingenuous.

Vladimof 4y ago

Nice plan... get inflation up, wages down.... who the hell voted these people in power...