As the Federal Reserve kicked off its first policy meeting of the new year on Tuesday, economists and progressive advocates reiterated their now-familiar call for the central bank to stop raising interest rates amid growing evidence that hiring, wage growth, and inflation are slowing significantly.
“Pushing millions of people out of work is not the answer to tackling inflation,” Rakeen Mabud, chief economist at the Groundwork Collaborative, said in a statement. “Additional rate hikes could jeopardize our strong labor market—and low-wage workers and Black and brown workers would suffer the biggest economic consequences.”
“There’s a clear path forward to avoiding a devastating and completely avoidable recession: Chair Powell and the Fed should stop raising interest rates,” Mabud added.
The latest push for an end to interest rate increases came as fresh data released by the U.S. Bureau of Labor Statistics (BLS) on Tuesday showed that wage growth continued to cool at the tail-end of 2022, an outcome that Federal Reserve Chair Jerome Powell has explicitly been aiming for even as experts have rejected the notion that wages are responsible for current inflation levels.
According to the BLS Employment Cost Index (ECI)—a measure watched closely by Fed policymakers—wage growth climbed just 1% in the final three months of 2022 compared to the previous quarter, a slower pace than analysts expected.
“The Fed has lost its excuse for a recession,” Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute, tweeted in response to the new BLS figures. “Over the last three months, inflation has come down exactly as a soft landing would predict, wage growth didn’t persist but moderated with the reopening to solidly high levels within late 1990s ranges, and the economy added 750,000 new jobs.”
“Too many hard-working families have everything to lose if the Fed stays the course with higher rates that only push the economy closer to a recession.”
Though Powell has insisted that Fed decision-making will be driven by economic data, he made clear last month that the nation’s central bankers don’t think inflation has slowed enough to justify a rate-hike pause or reversal, brushing aside the recessionary risks of more monetary tightening.
On Wednesday, the Fed is widely expected to institute a 25-basis-point rate increase followed by another of the same size at its March meeting, bringing the total number of rate hikes to nine since early 2022.
Even the central bank’s own models predict a sharp increase in the unemployment rate—and potentially millions of lost jobs—if Fed policymakers drive interest rates up to their desired range of between 5% and 5.25%.
Recent layoffs across the tech industry as well as data signaling a hiring deceleration have also intensified fears of a Fed-induced economic crisis.
“The Fed has every reason to halt further job-killing interest rate hikes as key indicators show inflation is slowing while the economic recovery remains fragile,” said Liz Zelnick, director of the Economic Security and Corporate Power program at Accountable.US. “Too many hard-working families have everything to lose if the Fed stays the course with higher rates that only push the economy closer to a recession.”
“Repeated interest rate hikes have done little to curb corporate greed that even Fed economists admit is what’s really driving high costs on everything from groceries to gas,” Zelnick continued. “The Fed faces a choice: back down and let policy and lawmakers continue to take impactful steps to rein in corporate profiteering—or keep needlessly threatening jobs and an economic downturn with further rate hikes.”
For months, economists and lawmakers have vocally questioned the Fed’s aggressive rate hikes and laser focus on the labor market given the myriad causes of the 2021 inflation spike, from pandemic-induced supply chain snags to corporate profiteering to Russia’s war on Ukraine to the climate crisis.
Some experts, however, have argued that the Fed’s seemingly misguided approach is perfectly understandable when considering that a central goal of the institution is to help the rich “conserve and increase their concentrated wealth.”
“Chair Jerome Powell and the Fed are willing to impose significant costs on workers and families in order to reduce inflation,” Gerald Epstein and Aaron Medlin of the University of Massachusetts Amherst wrote in The American Prospect earlier this month. “This focus on inflation, by promoting high unemployment, contradicts the dual mandate given to the Fed by Congress.”
“Why does the Federal Reserve treat its high-employment mandate so cavalierly when inflation is above 2%?” the pair continued. “The answer stems from the fact that since its founding, Fed officials have seen the world through ‘finance-colored’ glasses. Financiers do not like high inflation. Like all creditors who lend money today to be paid back in the future, financiers hate getting paid back in dollars that are worth less than the dollars they lent out in the first place.”
In a blog post on Monday, Economic Policy Institute research director Josh Bivens noted that the Fed’s dual mandate is “meant to balance the risks of inflation versus the benefits of fast growth and low unemployment.”
“Right now, the benefits of low unemployment are enormous, and the risks of inflation are retreating rapidly,” Bivens wrote. “If the Fed lets the current recovery continue apace by not raising interest rates further at this week’s meeting, 2023 could turn out to be a great year for the economic fortunes of American families.”
“The Fed should stand pat on interest rate increases,” he added. “If they instead insist on raising rates, this will pose a dire threat to what could be an excellent 2023 for the economic prospects of America’s working families.”
