The Latest from the Prospect ??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????
??
View this email in your browser [link removed]
**JULY 31, 2024**
On the Prospect website
The Domination Tour [link removed]
Four decades of intensifying corporate concentration turned the music industry into a wasteland of institutionalized control and abuse. Are antitrust enforcers ready to reckon with that? BY MAUREEN TKACIK
Crypto Cash Affecting Both Sides of the Democratic Divide [link removed]
Both beneficiaries of crypto campaign spending and their opponents are desperately endorsing the technology. BY LUKE GOLDSTEIN
Presidential Race Brings Out Silicon Valley's Military Contractors [link removed]
Tech executives are jumping into the presidential election. Many of them also do business with the Pentagon. BY NAOMI LACHANCE
Kuttner on TAP
****
****
****
****
****
****
****
**** Powell's Perverse Policies Persist
A flawed understanding of today's mild inflation leads the Federal Reserve to keep interest rates punishingly high.
The Fed had every good reason to begin the process of reducing interest rates at today's meeting of the Federal Open Market Commitee. Yet once again, Fed Chair Jay Powell and his colleagues refused to cut rates, keeping the target range for short-term rates at 5.25 to 5.5 percent, a 23-year high. Given the state of the economy, the Fed's stubborn stance makes no sense.
Recent government reports on growth, jobs, and inflation showed an economy that was defying predictions of both renewed overheating or a drift into recession. Second-quarter growth was a sustainable 2.8 percent [link removed], while inflation as measured by the Fed's preferred indicator, the Personal Consumption Index, continued to decline to an annual rate of just 2.5 percent [link removed].
The reports also showed that investment in equipment increased by an impressive 1.6 percent, suggesting a solid basis for future growth. And they showed that personal savings rates were down, meaning that people are having to borrow to sustain consumption. That in turn suggests that wages are far from adequate, and are not a source of inflation.
Yet the Fed refused to cut rates. As the Fed's official statement put it [link removed], "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." Compared to last month's policy statement, this one was slightly more mindful of the risks of rising unemployment, signaling a possible rate cut when the committee meets again on September 18.
The report of the 13-member Open Market Committee was unanimous, showing once again that the Fed governors and regional Fed bank presidents suffer from groupthink. Many outside economists consider the 2 percent inflation goal arbitrary and unrealistic. If inflation continues to hover at just above that level, will the Fed keep money tight indefinitely?
In his own statement at a press conference following the release of the report, Fed Chair Powell hinted that the central bank may finally relent and cut rates in September. If inflation continues to improve and labor markets remain stable, he said, "a rate cut could be on the table at the September meeting." But he wants to wait two more months to be on the lookout for any possible increase in inflation or changes in the job market.
[link removed]
YOU MIGHT ARGUE THAT IF THE ECONOMY is doing so well, the Fed's current monetary policy is about right. So why mess with success?
The problem with this stance is threefold. First, the Fed itself has become a prime source of inflation. High interest rates increase costs for homebuyers and builders. As people rely on credit card borrowing to sustain living standards in the face of inadequate wages, those costs increase as well. And higher small-business borrowing costs are passed along to consumers in the form of higher prices.
Second, most price increases in the current economy are not macroeconomic, but the result of market power by monopolistic industries, as the
**Prospect** keeps reporting [link removed]. Consumers are also paying more for homeowner's insurance, because insurers are paying out increased claims from catastrophes related to global climate change.
Third, some price hikes are due to factors that are even more extraneous to U.S. supply and demand, such as the sudden spike in global shipping costs [link removed]. Shippers are charging more because they are avoiding the risk of damage from Houthi bombardment in the Red Sea and are taking more circuitous routes around Africa rather than via the Suez Canal.
The Fed's tight money policy has no impact on any of those drivers of price hikes. The Fed doesn't understand the basic economics of price pressures unrelated to excessive demand. And any of these factors could spike between now and the Fed's September meeting, giving Powell an excuse to hold off cutting rates yet again.
~ ROBERT KUTTNER
Follow Robert Kuttner on Twitter [link removed]
[link removed]
To receive this newsletter directly in your inbox, click here to subscribe.?? [link removed]
Click to Share this Newsletter
[link removed]
??
[link removed]
??
[link removed]
??
[link removed]
??
[link removed]
YOUR TAX DEDUCTIBLE DONATION SUPPORTS INDEPENDENT JOURNALISM [link removed]
The American Prospect, Inc., 1225 I Street NW, Suite 600, Washington, DC xxxxxx, United States
Copyright (c) 2024 The American Prospect. All rights reserved.
To opt out of American Prospect membership messaging, click here [link removed].
To manage your newsletter preferences, click here [link removed].
To unsubscribe from all American Prospect emails, including newsletters, click here [link removed].
