Armchair economists were likely shocked when Federal Reserve Chair Jerome Powell announced that the Fed would raise its short-term interest rate quickly, and high enough to curb growth and hiring, should it decide it is necessary to curb inflation .
Powell told the National Association for Business Economics that if needed to “ensure a return to price stability,” interest rates could reach “a restrictive” zone that would slow the economy and increase the unemployment rate.
“Specifically, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than (a quarter point) in one or more sessions, we will do so,” Powell said.
For nearly two years, the Fed has been easing the economy, which has been criticized for being too slow to respond to prices pushing inflation to 40-year highs. Her solution may be painful now, but Powell seems to think we can handle it.
Pointing to near-record levels of job vacancies, among other economic indicators, he suggested that higher Fed interest rates could slow consumer spending enough to reduce this outsized demand for labor, which in turn would reduce wage growth to levels that the would not stimulate inflation.
“This is a job market that’s out of balance,” Powell said. Good for workers because it means higher wages for many, but also causes companies to raise prices to offset their higher labor costs.
“We need a sustained tight labor market,” he said.
Not quite what you were looking for when you asked the wrong federal official to do something about higher prices, right?
Something has to be done, and this is how the federal government manages it. As is almost always the case, those of us living in Appalachia’s struggling communities will likely suffer more from such measures than those in other parts of the country.
But there is no such thing as having our cake and eating it when it comes to the economy.
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