“many Fed watchers say some of the root causes of inflation lie outside the central bank’s control, like the U.S. labor shortage, global supply chain snags and Russia’s war on Ukraine. They’re raising concern that higher rates could crimp growth without leading to much relief on prices — a point that Sen. Elizabeth Warren (D-Mass.) has hammered away at Powell for months.”
“Markets are expecting rates to rise nearly 2 more percentage points by the end of the year. That would bring them to a level that is more normal by historical standards — the Fed’s main borrowing rate would sit above 4 percent — but is staggeringly high compared to the near-zero rates that have mostly prevailed for more than a decade.”
“In 1981, the US was in the midst of a second brutal stint of double-digit inflation in less than a decade. Gas prices were through the roof; mortgage rates were sky-high, keeping many middle-class people from being able to buy homes. The job market was weak, too, with unemployment above 7 percent. The nation was in full crisis.
The crisis would end, and most economists give credit for ending it to Paul Volcker, the chair of the Federal Reserve. Volcker got inflation under control through the economic equivalent of chemotherapy: He engineered two massive, but brief, recessions, to slash spending and force inflation down. By the end of the 1980s, inflation was ebbing and the economy was booming.
The 2022 inflation is not as bad as the inflation of 1978-1982 — but it’s the worst inflation the US has experienced in decades. The Federal Reserve is, accordingly, raising interest rates aggressively, as Volcker did. It’s not trying to engineer a recession, but its actions could cause one as an unintended consequence. And if inflation continues to be a major problem, demands for an even more aggressive Volcker-style response will grow.
A rerun of the Volcker shock or something like it is a real possibility, if not a likelihood. Which makes understanding what the first one entailed”
“Already, the current downturn is turning out to be less traumatic for wealthy and well-established people than it is marginalized groups and the poor.
The stock market is soaring, even though millions of people are out of a job. The Federal Reserve has really stepped up in terms of monetary policy to inject liquidity into the economy and keep markets afloat, while Congress hasn’t really kept up its end of the bargain. It passed the Coronavirus Aid, Relief, and Economic Securities Act, or the CARES Act, in March, but much of the support from it has dried up, and it’s not clear what, if anything, Capitol Hill plans to do next on the economy.
“The rich experience these recessions much differently than the rest of us,” Bharat Ramamurti, managing director of the Roosevelt Institute’s corporate power program, told me. “The pain is much more time-limited, it’s not as deep, and as a result, they recover much more quickly, and then they’re in a position to take advantage of the fact that other actors in the economy are still struggling and can use that to further consolidate their control and their power.””
“After returning from recess in September, Senate Republicans put forth a “skinny” stimulus to counter a much more ambitious package proposed by Democrats in the House in May. But even the GOP’s bill failed in the Senate — as Vox’s Li Zhou explained, in part because it was more of a messaging bill than a sincere effort at helping the American public. The economy isn’t as bad as some of the doomsday predictions, so some lawmakers seem to have decided more assistance isn’t necessary.”
“The Coronavirus Aid, Relief, and Economic Stability Act, or CARES Act, signed into law by President Trump in March, was an unprecedented act of fiscal policy by the US government. It entailed measures that would have once seemed unthinkable, including an extra $600 in unemployment benefits, $1,200 stimulus checks to most Americans, and billions of dollars in forgivable loans to small businesses. As Vox’s Dylan Matthews recently laid out, the Covid-19 response was larger than the stimulus policies put in place in response to the Great Recession and, from a fiscal standpoint, bigger than the New Deal.
It made a difference. Personal incomes actually went up in April thanks in large part to unemployment insurance and stimulus checks. Poverty rates didn’t increase.”
“The stimulus bill had with it an underlying assumption that the economy would improve by the summer, and that was predicated on the country getting its outbreak under control. But the country didn’t — a series of public policy and leadership failures at the federal, state, and local levels have allowed the virus to thrive.”