Ramesh Ponnuru, Tribune News Service
Federal Reserve Chair Jerome Powell’s efforts to cool down the economy are causing progressive criticism to heat up. He has been accused of wanting a “brutal” recession, trying to “throw millions of Americans out of work” and using “dangerous” rhetoric. And those are the comments of just one senator, Elizabeth Warren of Massachusetts. The criticism of the Fed’s interest-rate increases sometimes veers into demagoguery, just as did former President Donald Trump’s attacks on Powell when the Fed raised rates. But the progressives’ question deserves an answer: How can tightening monetary policy be morally justified even though it is expected to have a negative effect on employment?
What makes the question difficult is that the costs of inflation, while serious, are diffuse, while the costs associated with unemployment are highly concentrated. The costs of being unemployed are personal and often severe. They can include broken families, compromised mental health and reduced long-term prospects.
At the same time, the human toll of unemployment can’t be the argument-ender that Warren and like-minded observers want it to be. If it were, that would mean that tighter policy is never justified. That can’t be right.
Some progressives also have a simple-minded view of the relationship between unemployment and inflation. During the current bout of high inflation, House Speaker Nancy Pelosi has repeatedly said that she was told in the 1980s, when she came to Congress, that inflation rises whenever unemployment falls.
She may have been told that; it reflected the conventional wisdom of a prior era. The early 1980s saw a severe recession largely caused by an effort to tame inflation. But her claim that inflation rises as unemployment falls has proven false during her own career. Unemployment fell from 1992 to 1998, and again from 2011 to 2020, without an increase in inflation.
Over the long run, tolerating high inflation does not seem to increase employment, and low inflation does not threaten it. Keeping inflation low is therefore a sensible long-term goal. The question today is this: What should the central bank do when a low-inflation regime has been won at great cost — that early-1980s recession — but is now in danger of ending?
One option, which Warren’s rhetoric pushes toward, would be to accept the current level of inflation on the grounds that bringing it down would weaken the labor market. But accepting current inflation may in practice amount to accepting higher inflation. Market expectations of inflation over the next five to 10 years are at present only slightly higher than the Fed’s 2% annual target.
Throw in the towel, and those expectations could rise — and become self-fulfilling. Then the Fed would face a worse version of its current choice: Either accept that inflation will drift even higher or clamp down on it at the cost of unemployment. Letting inflation drift higher, flinching from the fight because of the risk of higher unemployment, and then being forced to act is more or less how the US got that severe recession in the early 1980s.
The remaining options are about degrees of tightening: a lot or a little, fast or slow. The fact that expectations are under control suggests that it might still be possible to restore low inflation without a large increase in unemployment. That’s an argument for moving fast. So is the fact that the unemployment rate is still relatively low. The Fed may find its resolve tested if inflation begins to subside. It may be tempted to quit tightening when inflation drops to 3%, rather than inflict the additional pain needed to get back to the 2% target. If inflation is relatively predictable and stable, a 3% average might not impose much higher costs than a 2% one. But the Fed would not be making this choice in a vacuum.
For the first time since the Great Recession a decade ago, the US Federal Reserve is poised to cut interest rates, shoring up America’s defenses as the global economy weakens.
US underlying consumer prices increased solidly in August, leading to the largest annual gain in a year, but rising inflation is unlikely to deter the Federal Reserve from cutting interest rates again next week to support a slowing economy.
The German government’s council of economic advisers more than halved its growth forecast for Europe’s largest economy on Wednesday and flagged a “substantial” recession risk as a result of Russia’s invasion of Ukraine.
The question that is on everyone’s mind is whether United States’ Secretary of State Antony Blinken’s visit to Tel Aviv and Ramallah and his meetings with Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas on Monday and Tuesday will help in lowering the tension between the Israelis
On a sunny July afternoon, James Oliver Huberty drove his black Mercury Marquis to a McDonald’s restaurant in San Ysidro, near the border with Mexico, bearing a small arsenal and hundreds of rounds of ammunition. He opened fire on cooks and counter workers, on diners and employees hiding in a storage area, on a mother
On Friday, Memphis Police Chief Cerelyn “CJ” Davis’s department released the video of 29-year-old Tyre Nichols being killed by five Memphis police officers. The officers reportedly arrested Nichols near his home, and when he allegedly attempted to flee, they beat him, with Nichols dying in the hospital three days later, on January 10.
A local newspaper reported on the ‘Australian of the Year’ award, given to an exceptional person who then spends the next year spreading their message or work. Taryn Brumfitt, the 2023 recipient’s words were included in the paper on Australia Day, Jan. 26, ‘There is so much despair in this nation for children and adults when