Fed makes clear recession and job losses are its goal

US Federal Reserve Bank chairman Jerome Powell has made his most explicit statements to date that the key goal of the central bank’s interest rate hikes is to bring about an increase in unemployment to suppress wage demands by workers in the face of the highest rate of price increases in four decades.

Chairman of the Federal Reserve Jerome Powell testifies before a House Financial Services Committee hearing on Capitol Hill in Washington, Wednesday, Dec. 2, 2020. (Greg Nash/Pool via AP) [AP Photo]

Powell’s commitment was laid out in his opening remarks to a press conference yesterday, following a meeting of the Fed’s policy-making committee and in his response to questions. As expected, the Fed lifted its base interest rate by 75 basis points, bringing the total rise since March, when the tightening policy began, to 300 basis points.

This is the fastest rate of increase since the early 1980s when, under the chairmanship of Paul Volcker, whom Powell admires and continues to reference, Fed rate hikes resulted in the deepest recession to that point since the 1930s in order to suppress the working class.

At the conclusion of his prepared remarks, Powell again used Volcker’s phrase that the Fed would “keep at it,” repeating it in his response to the first question at the press conference in which he said his “main message” had not changed since the Jackson Hole meeting of central bankers at the end of August.

The essence of Powell’s remarks at that meeting was that the Fed would not pull back on interest rate hikes as a result of worsening economic conditions as some sections of the financial markets considered would happen.

As James McCann, deputy chief economist at the fund manager Abrdn, told the Financial Times: “A key part of the message here is that policy is not necessarily going to pivot as soon as the economy starts to slow. They’re prepared to leave policy at restrictive levels even as the labor marker weakens.”

The word “restrictive” was contained in many of Powell’s responses to questions. And there was a revealing moment as to its objective in response to a question about how long there would have to be economic “pain.”

Powell replied that it really depended on “how long it takes for wages to come down” and then quickly added, most likely realizing he had said more than intended, “and more importantly for prices to come down.”

Leave a Comment