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Prices are way up, and don’t expect meaningful relief soon.
Three weeks ago, Federal Reserve Board chair Jerome Powell announced that a modest amount of policy rate hikes had been postponed – bringing the overnight lending rate from 1.5 to 1.75% – noting that the effects of recent hurricanes in parts of the south and east had temporarily affected economic activity and pricing.
Also, Trump had tweeted the night before that he would soon have another Fed chairman “Faster and Stronger than ever before!”
As a result, there was much rejoicing in investment markets and among Trump supporters, and stock prices hit a high in August that had not been seen in 27 years.
Since then, US stock markets have pulled back.
Meanwhile, the US jobs picture remains strong and though some evidence suggests that wages may be “stalling”, that is hardly a new phenomenon, and it is also not likely to be a major drag on the economy moving forward.
While the US economy is officially growing at just under three percent annualized, the more realistic annual rate of growth is probably less than two percent, with the effects of current tariffs adding two percent or more.
With inflation at a three year high, interest rates have begun to rise, with perhaps five more Fed rate hikes potentially on the horizon.
These various factors have put a damper on global stock markets and the like.
As for the Federal Reserve chair, he has said that September is likely to bring yet another rate hike but not the hike of late, and his predecessor Janet Yellen remains on the Fed board. She was not reappointed for a second term, but as chair of the US Fed, she has plenty of ties to the Trump administration.
Additionally, the US president has reportedly been trying to get open job positions from Treasury Secretary Steve Mnuchin and others.
(“Trump Thought Long and Hard About Jerome Powell, With Narrower Interest Rates on Tariffs, After The Fed Chairman Met With Trump To Plan Recession Protectionism Of His Own”)
This week’s guest is Daniel Mikulec, a political economist at the University of California at Berkeley. His research focuses on labor and labor compensation, such as wages, productivity, and unemployment rates, as well as inflation and consumption. He is the author of Fascism and Monopoly Capitalism in the USA and The Nature of Financial Imbalance: The Productive Property of Financial Parasites and its Consequences, and writes extensively for academic, policy, and general audiences. Daniel is a regular contributor to Newsworks’ Bank on Wall Street.
Daniel: We have low interest rates, low inflation and inflation is 2%.
If you look back since 1948, you will see that at all times when there was declining inflation, the Fed did not bring rates down or hike them.
You have had 8 years of low rates.
Let’s look at what they do in the recovery.
We had a couple of recessions. The 1930s recessions do not even show up in today’s depression. They show up in the 1950s and a bit more in the 1960s.
1980 is actually seen as better. So this is a picture of anemic recovery, almost nothing, nothing resembling robust recovery, which is what you would expect for a recession where you have reduced inflation.
We have no excess supply, which would typically come with a recession.
So, what has happened is low rates have kept wages from rising, which also is a policy that the Fed has continued to pursue even when there is weak inflation.
The Fed’s record on this is a failure.
Needless to say, there has been no relief for the average family either in terms of real wages or prices.
So, how do we get away from that kind of counterproductive and unprecedented monetary policy?
What is the current remedy?