Fed Chairman Jerome Powell is at the helm of America’s inflation rate, and one could argue that his decisions have been a large factor in our nation's current struggle with inflation. Powell’s proposed hikes in interest rates are seen as a way to combat rising prices, but it can be argued that this strategy only serves to increase economic disparity among Americans. By implementing wage increases for those that are not in top-tier management, more money would be circulated throughout the economy and the average worker would benefit from increased spending power.
In addition to Powell’s measures, monopolistic practices must also be tackled in order to lessen inflationary pressures by Congress. The concentration of market share amongst a few firms gives them an unfair advantage over competitors, allowing them to set prices at whatever level they wish. This kind of power cannot be allowed to persist, as it prevents competition and inflates the cost of goods and services. And we have seen corporate profit taking in huge numbers for no other reason than that they can because of the temporary inflation. We keep letting them get away with it it becomes just inflation nothing temporary about it if we don't call them out on it!
It is clear that Powell’s proposed interest rate declines are not enough to effectively deal with the issue of inflation. In order to truly address this issue, Powell must take a more holistic approach which includes halting further increases in interest rates and replacing them with cuts but also urging corporations to take action and begin wage increases for all except top-tier management. Furthermore, anti-competitive practices must also be addressed in order to prevent any more monopolies from taking root, thus protecting consumers from exorbitant costs for essential goods and services. Only by addressing both Powell’s actions as well as preventing monopolistic behavior and creating an expectation for reasonable corporate ethics can we hope to effectively manage the inflation rate in America. The United States has to take a deep look within and it must take action and work to prevent economic disparity between the highest and lowest-paid employees in order to truly combat inflation the side effects of such a move would be nothing but positive for all.
It's not all on Powell, in this information age how many times now have we seen people like Elon Musk, Donald Trump, and even Jamie Diamond post or tweet a comment that hurts a company's value and sometimes tanks the stock market completely, Congress must also address issues such as social media and its effects on the US economy. Along with so much more that needs to be addressed such as the collapse of FTX leaving a lot of people out of a lot of money. There are so many things where Congress has been left in the dust that needs regulation, and because of republican obstruction to pretty much, anything a democrat had proposed since 2008 nothing has gotten done. And because nothing is getting done it is hurting real people. Conservatives need to take a good look at what they have been voting for. I realize many have been on auto-pilot for years when it comes to voting but I would think they would want to rethink that. Because what has the republican party done other than giving an unwanted, unasked-for, unneeded tax break which is another huge reason we are in this mess, what have they done to address anything, not just the economy other than talk? I have not seen a real republican bill in a long time regarding our economy and how to keep it strong. But let's get back to Jerome Powell and what he did when he first came to the Fed as Chairman appointed by Donald Trump.
The Backstory
In order to understand how we got here; we need to go back to early 2018. At that time, the U.S. economy was humming along nicely. The stock market was near all-time highs, unemployment was at a 17-year low of 4.1%, and wages were finally starting to rise after years of stagnation. Inflation was still relatively low, but it was starting to tick up gradually as the economy strengthened. In response to these conditions, the Fed began gradually raising interest rates from historically low levels in order to prevent inflation from rising too quickly. The Fed raised rates four times between June 2018 and December 2018, from a range of 1.75% to 2.5%. Then, in December 2018, something happened that caught everyone off guard: President Donald Trump appointed Jerome Powell as the new head of the Federal Reserve.
Powell had only been a member of the Fed for less than two years at that point, and he had no prior experience as a central banker. Nevertheless, Trump felt that Powell would be more "accommodating" than his predecessor, Janet Yellen when it came to interest rates and other economic policy matters. Little did we know at the time just how right Trump would turn out to be about Powell's accommodative stance.
The Fed Changes Course
Under Powell's leadership, the Fed abruptly changed course in early 2019 and stopped raising rates altogether. Then, in July 2019, Powell signaled that the Fed might start cutting rates if economic conditions warranted it—which they did not, in my opinion, and that of many economists at the time. The stock market responded immediately by falling sharply over concerns that a potential recession might be on the horizon.
The Fed ultimately cut rates three times between July 2019 and March 2020 in an effort to prop up the economy—even though there was no evidence that a recession was actually coming. These rate cuts had two major effects: first, they caused asset prices (e.g., stocks) to surge higher as investors poured money into riskier assets in search of higher returns; and second, they put downward pressure on interest rates across the entire yield curve (the difference between short-term and long-term rates). This had the effect of making borrowing cheaper for businesses and consumers alike—which gave everyone more incentive to borrow money and take on more debt than ever before.
The Perfect Storm Forms
Fast-forward to today: we are now dealing with the consequences of those three unnecessary rate cuts by Jerome Powell—and they are not pretty. As I warned back in December 2018 when Trump appointed Powell as head of the Fed, his accommodative monetary policy stance has helped create a perfect storm for inflationary pressures: asset prices are soaring while bond yields are near record lows (meaning that there is less incentive for people to save money), and borrowing costs are at historic lows (meaning that there is more incentive for people to take on debt). This perfect storm has resulted in an inflationary spiral that is starting to pick up speed—and it shows no signs of slowing down any time soon.
At this point, Powell is essentially stuck between a rock and a hard place: if he lowers rates too quickly, he risks creating an even bigger inflationary spiral; but if he doesn't lower rates soon enough, he risks stalling the economic recovery. Powell's solution thus far has been to taper off his rate cuts and instead focus on other measures such as quantitative easing (QE) and yield curve control (YCC). But these measures are likely not enough to keep inflation in check—and Powell knows it.
It is time for Powell to take a more aggressive stance when it comes to fighting inflation. Instead of relying solely on monetary policy tools like QE and YCC, Powell should also be looking for ways to encourage the increase in wages for workers across all income levels—except those at the top. This would help reduce the huge disparity that exists, the top-tier people have had a long ride of insane salaries and bonuses that they take from their workers, which then has the effect of fewer funds circulating, causing consumer demand to drop and the economy to suffer. Congress and the President need to look beyond monetary policy tools. They need to look back at what Teddy Roosevelt did to break up monopolies way back then and use the same tactics today to break up monopolies that are stalling economic growth.
Monetary policy tools will only get Powell so far—it is time to look beyond them and address the root causes of our current inflationary spiral. Powell needs to take a more proactive stance in fighting inflation, and the ways he can do this include encouraging wage increases for all workers (except those at the top) and breaking up monopolies that are stifling competition. As Powell himself said back in December 2018: “It’s not my job to try and fix every problem in the economy, but it is my job to make sure we have a sound monetary policy.” Let’s hope Powell takes a more active stance in fighting inflation—otherwise, it’s just a matter of time before we find ourselves in an even worse economic situation.
- https://www.marketwatch.com/story/the-feds-powell-says-inflation-isnt-a-surprise---but-hes-wrong--2020-09-21?mod=mw_latestnews
- https://www.for
