Ventings from a guy with an unhealthy interest in budgets, policy, the dismal science, life in the Upper Midwest, and brilliant beverages.
Wednesday, December 14, 2022
No matter what the data says, the Fed will keep tightening. Jobs and workers don't matter
It was decision day at the Federal Reserve. And people were looking to Fed Chair Jerome Powell not as much for the action that took place today (the Fed Funds interest rate was raised by 1/2 a point), but for what Powell would indicate he would do in 2023. Especially with increasing evidence that inflation has significantly slowed in the 2nd half of 2022.
The answer - Powell and his fellow central bankers still think the inflation monster is lurking, no matter what the data says.
Recent signs of slowing inflation have not brought any confidence yet that the fight has been won, Powell told reporters after the Fed's policy-setting committee raised its benchmark overnight interest rate by half a percentage point and projected it would continue rising to above 5% in 2023, a level not seen since a steep economic downturn in 2007.
Those rises in borrowing costs would come despite an economy that Fed officials projected will operate at near stall speed through next year, with an annual growth rate of 0.5% and an unemployment rate nearly a full percentage point higher by the end of 2023, well beyond the increase historically associated with a recession.
Because apparently seeing everyday workers gain back their earlier losses in average hourly wages just isn't an acceptable outcome for these guys.
So even as growth in jobs and the economy is slated to fall and possibly go below zero, Powell and other Fed officials indicated that they're going to keep trying to crush workers inflation and make sure it can't rise back up. Including the plans to keep tightening until there is evidence that inflation hits an arbitrarily low level.
The rate increase on Wednesday, which was approved unanimously by Fed policymakers and widely expected by financial markets, lifted the targeted policy rate to the 4.25%-4.50% range, with officials expecting it to rise to a level between 5.00% and 5.25% next year.
If anything, the bias is higher: seven of 19 policymakers projected even higher rates will be needed, and U.S. central bankers are unanimous that the risks are tilted towards higher-than-expected inflation rather than a surprise in the other direction.
Still, Powell said, repeating the hard-line on enforcing the Fed's 2% inflation target that he has developed through the year, "the largest amount of pain, the worst pain, would come from a failure to raise rates high enough and from us allowing inflation to become entrenched."
How would inflation "become entrenched"? Because workers keep seeing wages go up by 4-5% due to tight demographics, and demand stays strong, so the businesses can continue to pass on cost increases and keep profiting? THE HORROR!
These guys' heads are still stuck in the 1970s when it's pretty evident that the situation in 2022 is a whole lot different than that. We are nowhere near the edge we were in 15 years ago, but there is evidence that the rental and housing markets are seeing prices come back to earth. Continuing to increase expenses for housing and other interest rate-affected sectors doesn't seem like a great idea when the outlook already isn't great as we end 2022 with an economy that seems pretty maxed out.
Post a Comment