'A Fed that is overly aggressive in raising interest rates is expanding and solidifying the structures of inequality in the American economy, as it has done previously for decades in the past.'
Solidifying inequality
It is well established that lower-wage workers and Black workers are hit much harder by recessions in terms of both unemployment and lost income. Conversely, in years when the economy is closer to full employment, wage gains are proportionatelySo a Fed that is overly aggressive in raising interest rates is expanding and solidifying the structures of inequality in the American economy, as it has done previously for decades in the past.
As many economists have noted, the vast majority of the increase in inflation that we have seen over the past 18 months has been a result of external shocks, most important the war in Ukraine, which has raised food and energy prices ; and the economic disruptions caused by the pandemic. Some of these prices have begun to reverse; and in any case it's difficult to see how the Fed's interest rate hikes are going to lower these prices, as Fed Chair Jerome Powell stated last month.
But the Fed has not explained why a"soft landing"—avoiding a recession—would be so difficult. We do not have a giant real estate bubble as in 2006, or a stock market bubble as in the late '90s. Both of these were so large that it could be shown in advance that they were unsustainable and capable of causing a recession when they burst.
This time, it's just the Fed's interest rate hikes that are threatening to cause a recession. The Fed should be able to make sure that it doesn't make that mistake.
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