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**JANUARY 31, 2024**
On the Prospect website
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Moral Bankruptcy
The
constitutional grant of a second chance for the destitute has become an
enabler of reverse wealth redistribution. One wild case in Houston tells
the story. BY MAUREEN TKACIK
America Has Stumbled Into an Avoidable Middle East War
Biden's foreign-policy team ended the war in Afghanistan, and is now
caught in a trap of its own making. BY THANASSIS CAMBANIS
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A Hole in the Culture
Why
is there so little art depicting the moment we're in? BY RICK
PERLSTEIN
Kuttner on TAP
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**** Jay Powell's Victory Lap
Does the Fed deserve credit for the strong economy? Will our central
bankers screw it up by waiting too long to cut rates?
The Federal Open Market Committee wrapped up its rate-setting meeting
today leaving rates unchanged and warning that the economy is not
totally out of the woods on inflation. The FOMC did not recant the
signals it sent late last year indicating that 2024 is likely to see
three rounds of rate cuts. That had led some commentators to hope that
the first cut could come as early as the Fed's March meeting. But it
now appears that the Fed will wait longer to observe economic trends and
postpone those cuts to later in 2024.
The FOMC's statement
,
released at 2 p.m. today, cautioned that "the Committee does not expect
it will be appropriate to reduce the target range until it has gained
greater confidence that inflation is moving sustainably toward 2
percent." At his press briefing, Chairman Jay Powell added, "We will
need to see continuing evidence" of declining inflation before cutting
rates. Stock markets quickly fell, reflecting concerns that we will have
to wait longer for rate cuts.
The Fed's policy of high interest rates, which have already persisted
longer than necessary, has itself become a source of inflation, raising
costs of home mortgages and business loans, and making productive
investment more expensive. To the extent that the pandemic bout of
inflation was almost entirely the result of supply shocks, we need to
redouble efforts to rebuild domestic capacity. High interest rates
retard that process.
Higher interest rates also increase the cost of financing the national
debt. Deficit hawks
have been making a huge issue of the rising debt, claiming that it will
have to spike inflation. But financial markets aren't buying it. The
30-year Treasury bond is trading at under 4.3 percent. Nobody in their
right mind would lend the government money for 30 years at such a low
rate if they expected long-term inflation to be much over 2 percent, yet
the Treasury has plenty of buyers.
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Because the inflation of 2021 and 2022, which subsided by late 2023, was
supply-driven, it would have come down without the Fed's policy of
needlessly tight money. The economy is now very strong, with core
inflation below the Fed's own 2 percent target at 1.7 percent, and the
best job creation record in half a century.
The Fed has waited too long to take its foot off the brake, but better
late than never. If Fed Chair Powell wants to believe that the
combination of low inflation and strong economic growth is to his
credit, let him indulge that fantasy-as long as it is prologue to the
promised rate cuts later this year.
Financial markets have already "priced in" the expectation of rate cuts.
Until today's cautionary announcement, stock markets have been
soaring.
Now the financial boom needs to be better shared with regular working
Americans.
Monetary policy and tight labor markets can do only so much on that
front. In addition to more benign Fed policy, what's needed is better
wage regulation and above all stronger unions.
~ ROBERT KUTTNER
Follow Robert Kuttner on Twitter
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