United State Federal Reserve She aims her mighty hose at the living room, but it’s the burning woods. As a result, people may drown even when their house is on fire.
This sums up the unfortunate state of anti-inflation in America.
On Wednesday, the Federal Reserve – the US central bank – raised interest rates by three-quarters of a percentage point, and pointed out More price increases to come, probably as soon as September.
That followed a quarter-point increase in March, another half-point in May, and three-quarters of a point in June.
The Ministry of Commerce announced on Thursday that US economy shrunk for the second consecutive quarter.
While it’s not technically a recession (economists inside and outside the White House have spent much of the past several days deciphering the word “recession”), there is no doubt that the US economy is slowing.
This, to put it mildly, does not make sense.
Inflation has spread around the world – the result of pent-up demand more than two years ago from the pandemic (A).second abbreviation From limited supplies of everything from computer chips to wheat, due to difficulties in getting the world economy running and running.
Add to Putin’s war in Ukraine that has driven up global energy and food prices, and China’s COVID lockdown, and you’ve got a complete conflagration.
This is not all. Big companies are busy raising their prices because consumers don’t have much choice. Companies use inflation as a cover.
Prices at the gas pump have fallen a bit in the last month but are still eye catching. (Here in California, I pay over $6 a gallon.)
At the same time, big oil has reached its breaking point. Exxon just announced its second-quarter earnings $17.9 billion, more than triple what I earned last year. Chevron’s profits more than tripled $11.6 billion.
The two American oil giants are not again pumping their profits into energy, green or otherwise. They buy back their shares to reward investors and executives.
Or consider giants selling consumer staples, such as Proctor & Gamble (the maker of everything from Gillette razors to Tide cleaners).
On Friday, Procter & Gamble reported another quarter of higher earnings despite higher raw material and transportation costs. How did you manage this feat? By raising their prices even more.
Meanwhile, half of the recent rise in grocery prices comes from beef, pork and poultry. Only four large conglomerates control these markets, and they coordinated their price increases to make big profits – here again, using “inflation” as an excuse.
If the markets are competitive, companies will keep their prices low to prevent competitors from taking over customers. But they are raising prices even with record profits.
The Fed’s fire hose hits none of this.
In the meantime, we are told not to worry because the job market is doing well.
There are two aspects to the labor market – jobs and wages. The number of jobs was increasing well. Let’s hope this continues. But hourly wages have fallen sharply, when adjusted for inflation.
If the Fed continues to raise interest rates – even if the national economy avoids an official “recession” – most workers will fall back further.
The living standards of everyone who borrows money is already dropping. Due to the interest rate hike by the Fed, the average credit card debt rate has reached 17.25% (up from 16.34% in March, before the Fed started raising rates). Rates for student loans, auto loans and mortgages are also rising.
The government should use a better fire hose aimed at the wildfire, which would not burden the bottom 80%.
For starters, impose a temporary windfall profit tax on the big oil companies, on the sellers of giant consumer goods and on the big production companies. This would reduce their incentive to engage in price gouging.
Bolder antitrust enforcement — even the threat of blocking mergers and break-ups of giant companies — could dampen their enthusiasm for raising prices.
If Congress refuses to allow the government to use its negotiating power to lower pharmaceutical prices, big pharma is a good candidate for temporary price control. (FDR controls prices by executive order.)
Finally, higher taxes on the wealthy — like Democrats finally ready to legislate — will help dampen aggregate demand, thus quelling some of the inflation fire.
The only tool the Fed uses to fight the fires – raising interest rates – is aimed in the wrong direction. It strikes working people rather than the companies that are responsible for most of the price increases (on top of the rising costs of global supplies).
We need to fight rising prices, not workers.