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TIME FOR THE FED TO MEET THE FTC  
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Robert Kuttner
June 5, 2024
The American Prospect
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_ The real source of too many price hikes is concentrated market
power, not macroeconomic overheating. _

Federal Reserve Chair Jerome Powell speaks during a news conference
at the Federal Reserve in Washington, May 1, 2024., Susan Walsh / AP
Photo

 

The _Prospect_’s latest series on pricing power
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is a lesson in how the real economy works. You are invited to read it,
and we also hope there’s another audience: the leaders of the
Federal Reserve.

The latest numbers on slowing economic growth and moderating inflation
suggest that it’s truly time for the Fed to cut interest rates. The
Personal Consumption Index
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Fed’s favorite indicator of inflation, rose just two-tenths of 1
percent in April, which translates to an annual rate of just 2.4
percent.

Meanwhile, other key indicators show the economy slowing dramatically.
The Commerce Department reported that GDP slowed to an annual rate of
just 1.6 percent
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the first quarter of 2024, down sharply from 3.4 percent in the last
quarter of 2023. Estimates for the second quarter are now around the
same range [[link removed]].

The Fed’s obsession with macroeconomic aggregates also fails to take
into account one of the most important drivers of price hikes:
concentrated corporate power in sectors ranging from drugs to health
care to airfares to grocery prices.

_MORE FROM ROBERT KUTTNER_
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Despite the fact that the economy is performing well and inflation is
down, President Biden is plagued by the perception of voters that
prices at the grocery store are way up. In the short run, grocery
prices have indeed moderated. According to the Bureau of Labor
Statistics [[link removed]], the prices
of foods consumed at home increased just 1.1 percent over the past
year. Food prices actually declined two-tenths of 1 percent in April.

But shoppers are thinking of what prices were before the pandemic. And
on that basis, prices are through the roof. According to a report by
our friends at The Lever
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2024, consumers spent
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percent more for a carton of eggs, 33 percent more for a pound of
ground beef, and 22 percent more for a gallon of milk than they did
before the pandemic.

Why? It’s not that shoppers are hungrier and bidding up food prices.
Nor is it because key foods are in short supply, though some were
during the pandemic.

Now that the pandemic is over, the main reason why grocery prices have
not come back down is the concentrated pricing power of large food
producers and grocery chains. In 2023, for example, according to The
Lever, “PepsiCo raked in
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billion in net revenue, a 35 percent increase over pre-pandemic
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Tyson Foods more than doubled
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margins between 2021 and 2022 after hiking prices for beef, pork, and
chicken by upwards of 30 percent.” And as Luke Goldstein’s piece
in the _Prospect_
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today, price-fixing facilitated by a company called Agri Stats has
consistently set prices for meat and poultry higher.

So here’s an idea: When Jay Powell’s term as Fed chair ends in
2026, President Biden should extract a commitment from Powell’s
successor to create a new research division at the Fed to study price
hikes driven by excessive market power and the connection of those
price increases to the general rate of inflation. And at least one
other member of the Fed’s Board of Governors should be a specialist
on market concentration and pricing power. The process could begin
with a series of tutorials for the Fed by the FTC, which is already
studying the issue. It’s time to bring power into the conversation
around pricing.

_Robert Kuttner is co-founder and co-editor of The American Prospect,
and professor at Brandeis University’s Heller School._

_Used with the permission © The American Prospect, Prospect.org
[[link removed]], 2024. All rights reserved. _

_Read the original article at Prospect.org.
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_Support the American Prospect [[link removed]]._

_Click here [[link removed]] to support the Prospect's
brand of independent impact journalism_

* inflation
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* prices
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* corporate power
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* FTC
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* federal reserve
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