From Federal Reserve Chair Jerome Powell to Boston Fed Bank President Susan Collins, tenants inside the Eccles Building have been routinely warning businesses and consumers of "pain." The agony is broad, but it can be summarized by this laundry list of torture methods: raising borrowing costs, elevating inflation, and obliterating demand. That last one is important because it includes labor, something the US central bank is attempting to eviscerate to trim the consumer price index (CPI) and personal consumption expenditure (PCE) price index. But is this necessary? If you are a Keynesian interventionist, it is of the utmost importance to ensure millions receive pink slips.
Federal Reserve Wants You Out of Work
More than two years ago, the Federal Reserve kicked off the most aggressive monetary expansion campaign in the history of the 110-year-old institution. By the end of the fourth round of quantitative easing, the central bank had printed more than $6 trillion – and counting – and brought the balance sheet to nearly $9 trillion. Policymakers argued that these efforts were justified to prevent a COVID-induced meltdown of the financial system. But the Fed’s use of the magical money tree led to enormous consequences, mainly 40-year-high inflation that is entrenched in the US economy.
Now the Fed and its advocates want the American people to pay for the group’s plethora of mistakes. According to the Federal Open Market Committee’s (FOMC) dot-plot – a chart of governors’ expectations for the overall economy – interest rates will reach 4.6% at the end of next year. So, it is possible the terminal rate could top 5% sometime in 2023. But the Survey of Economic Projections also shows that the jobless rate will max out at 4.5%.
It might not seem like it now because of tight labor conditions and monthly JOLTS data regularly surpassing expectations, but the unemployment rate will likely exceed this rosy forecast. While there can be a debate over a 4%, 5%, or 6% jobless figure, the real discussion is why the Fed insists that labor is contributing to four-decade-high inflation. This is one of the dominant themes emanating from the lips of Powell and his colleagues.
Of course, this is an entirely different tune from a year ago. In September 2021, Powell insisted that inflation was transitory and that the target rate would fall to 2% sometime in 2022. At this time, the labor market was beginning to tighten as job creation (or returns, if you wish) was impressive, and year-over-year wage growth was already climbing. However, even with a treasure trove of data at his fingertips, any mention of skyrocketing inflationary pressures and sizzling labor conditions were ignored.
What changed? Nothing, even the Fed’s belief in the Phillips Curve, an idea that the US economy must endure a trade-off: high unemployment and low inflation or low unemployment and high inflation. This concept, named after economist A.W. Phillips, was destroyed by both Austrian and Chicago School economists, as well as reality. In the 1970s, the United States went through an extended period of both climbing joblessness and soaring inflation. Even prior to the coronavirus pandemic, the nation enjoyed a span of low inflation and minimal unemployment.
(Photo by John Smith/VIEWpress)
The Phillips Curve is a symptom of a greater disease. The Federal Reserve and its supporters aver the statist position that it can nudge the direction of the economy and financial markets through the instrument of monetary policy. Unfortunately, this is correct, and it has been apparent for the past couple of years as investors hang on to every word in each FOMC statement or post-meeting presser.
Ultimately, labor has not contributed substantially to an 8.3% annual CPI or a 6.5% core inflation rate. So, what has been the driver exactly? It is about digging to the root cause: the Federal Reserve and its counterparts’ astronomical money-supply growth that injected new units of currency into the global marketplace, resulting in immense and simultaneous demand for a scarcity of goods caused by shutting down international commerce due to the once-in-a-century public health crisis.
You Will Eat Ze Bugs
Like World Economic Forum head Klaus Schwab’s notion that everyone must eat ze bugs to save the planet, the Fed believes millions need to lose their jobs to halt inflation. For any person functioning in a more realistic world, these would appear to be head-scratching propositions. Of course, these are the same intellects who reside in the corridors of power, know better than the plebs, and promise to hit the great reset button to build back better. Considering the world is presently witnessing the results of big government acolytes’ actions, it is safe to say that the globalists and interventionists have failed to accomplish anything good for mankind. Well, perhaps this is not true. At least the globe has generated the greatest supply of memes that poke fun at these overlords.
