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**OCTOBER 10, 2022**
Kuttner on TAP
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**** Recovery Is Not Quite Dead
This will only whet the Fed's appetite for more punishment.
Despite the Fed's best efforts to snuff it out, the economy's
recovery continued last month. The Labor Department's jobs report
, released Friday,
showed that the economy added 263,000 jobs in September, led by service
sector employment.
The stock market promptly lost several hundred points, since the
better-than-expected news on the jobs front means that the Fed is even
more likely to raise interest rates another three quarters of a point
when the Fed's Open Market Committee meets again in early November.
But beneath the good news was not such good news. Wage growth is already
softening-to just 3.8 percent at an annualized rate in September, far
below the rate of inflation, which means workers are taking real wage
cuts. See EPI's smart commentary
on this.
The Fed seems determined to continue administering its grim medicine
until it creates a real recession. In last Wednesday's post, I pointed
out that none of President Biden's Fed appointees has seen fit to
dissent from the unanimous commitment to keep raising rates and
weakening the economy.
If anything, I understated how bad things are. On Thursday, in her first
speech
as
a Fed governor, economist Lisa Cook, allegedly the most liberal of
Biden's appointees, said this:
Inflation poses both a near- and long-term threat. Aside from the
immediate effect of higher prices on households and businesses, the
longer it persists and the more people come to expect it, the greater
the risks of elevated inflation becoming entrenched. I think it is
critical that we prevent an inflationary psychology from taking hold.
The theory of "inflationary expectations" is a pretty feeble rationale
for deliberately creating a recession. As Cook herself pointed out
elsewhere in her remarks:
Much of the surge in inflation over the past year was rooted in the
incomplete recovery of aggregate supply from pandemic-related shutdowns.
Global supply chain disruptions had especially wide-reaching effects.
This year, Russia's invasion of Ukraine sparked a surge in energy
prices and affected global food markets both directly, by reducing
shipments of commodities such as grain, and indirectly, by, for example,
curtailing fertilizer production. In recent months, some of the upward
pressure from those forces has begun to wane.
So Cook's view, like that of the entire Fed Board of Governors, is
disjointed. Hiking interest rates, a policy that she espouses, will do
nothing to ease price increases driven by supply disruptions, which
indeed are already easing. As Paul Krugman recently pointed out
,
"the cost of shipping a container
across the Pacific, which was $20,586 in September 2021, is now $2,265."
But these rate hikes will harm workers' wages. We need a lot more
dissent-if not from Fed governors, from economists and from our
elected legislators. The Fed keeps making epic mistakes, grounded in
wrong-headed theory and excessive political alliance with bankers. It
should not be above criticism.
~ ROBERT KUTTNER
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