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heidi shierholz
Fed Warned to Stop 'Needless Rate Hikes' as Inflation Cools for 10th Straight Month
“The verdict is in: we don't have to choose between low prices and low unemployment. We can have both," said one economist.
May 10, 2023
Progressive economists on Wednesday welcomed newly released U.S. inflation data as further evidence that price increases can be brought under control without crushing the labor market and throwing millions out of work.
But they also warned that the still-strong job market could falter, with devastating consequences for workers, if the Federal Reserve keeps raising interest rates in the coming months.
"The verdict is in: We don't have to choose between low prices and low unemployment. We can have both," said the Groundwork Collaborative's Lindsay Owens after the Labor Department released new data showing that the Consumer Price Index (CPI) rose 4.9% in April compared with the previous year—a cooler figure than analysts expected.
"Today's inflation numbers show 10 straight months of falling inflation on the heels of a 53-year record low unemployment rate," Owens said, referring to last week's better-than-anticipated jobs report. "The only thing left to do now is to ensure that [Fed Chair Jerome] Powell doesn't screw it up with needless rate hikes that would accelerate instability in financial markets and jeopardize our strong labor market."
Heidi Shierholz, president of the Economic Policy Institute, called the new CPI data "good news for working people," noting that "inflation is nearly back to pre-recession rates, while the unemployment rate is at 50-year lows."
\u201cGood news for working people\u2014inflation is nearly back to pre-recession rates, while the unemployment rate is at 50-year lows.\u201d— Heidi Shierholz (@Heidi Shierholz) 1683725861
The new CPI figures came a week after the Federal Reserve imposed its 10th consecutive interest rate increase since March 2022, ignoring repeated warnings from outside experts, lawmakers, and even the Fed's own economists that the aggressive attempt to slow the economy and tamp down inflation risks a disastrous recession and mass job loss.
During a press conference last week, Powell left the door open to a pause of interest rate hikes at the Fed's June meeting but did not make a firm commitment, pledging only to "be driven by incoming data meeting by meeting."
Progressives advocates and experts, including Owens, have consistently argued for more than a year that interest rate increases—which target economic demand by raising borrowing costs—are the wrong response to inflation driven by many factors beyond the Fed's direct control, from pandemic-induced supply chain snags to corporate profiteering.
While prominent pundits have dismissed the notion that corporate profit-seeking during the pandemic helps explain persistently high inflation in the U.S. and across the globe, mainstream publications such as The Wall Street Journal have determined that progressive economists were right to emphasize big business pricing power as a significant culprit.
"There are signs that companies are doing more than covering their costs," the Journalreported last week. "According to economists at the [European Central Bank], businesses have been padding their profits. That, they said, was a bigger factor in fueling inflation during the second half of last year than rising wages were."
Major companies have used the windfalls from their price hikes to reward investors. The watchdog group Accountable.US noted in a report released Wednesday that Mondelez, which owns Belvita and Chips Ahoy!, "saw a shocking 142% increase in quarterly earnings after announcing price hikes, which empowered it to spend $928 million in dividends and stock buybacks for their wealthiest shareholders."
"It shouldn't come as a shock that Chair Powell’s actions have eroded public trust in the central bank."
A Gallup poll released Tuesday showed that just 36% of U.S. adults have either a "great deal" or a "fair amount" of confidence in Powell, a former private equity executive first nominated to the Fed chairmanship by former President Donald Trump.
President Joe Biden renominated Powell to the critical post in late 2021 despite outspoken opposition from some Democratic lawmakers, including Sen. Elizabeth Warren (D-Mass.).
"The 36% rating for Powell is the lowest Gallup has measured for him during his six years as Fed chair. It is also the lowest reading Gallup has had for any prior Fed chair," the polling organization noted in a summary of its findings.
Owens said in response to the survey that "it shouldn't come as a shock that Chair Powell's actions have eroded public trust in the central bank."
"Instead of fighting for a strong labor market and securing our banking system, Chair Powell has enacted 10 consecutive rate hikes and put us at risk of a recession," said Owens. "Americans want a Fed that is on their side, not the side of big banks."
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Progressives Warn Fed-Induced Recession Will 'Throw Millions of Americans Out of Work'
"It takes a while for higher interest rates to have a big impact," one expert stressed, "and there's a huge concern the Fed has overshot and secured a recession in coming months."
Oct 07, 2022
New federal data published Friday shows that U.S. job growth slowed last month, a sign that the Fed's aggressive interest rate hikes are starting to take their toll on the labor market.
According to the Bureau of Labor Statistics (BLS), employers added 263,000 jobs in September--less than the 315,000 added the month before and slightly below analyst expectations. The unemployment rate, meanwhile, fell to a historically low level of 3.5% as labor force participation declined slightly.
Nominal wages rose just 0.3% last month, further undercutting the notion that a wage-price spiral is to blame for stubbornly high inflation.
"If the Fed continues down this path, workers could suffer from a recession with persistent high prices, high unemployment, and lower wages."
"These data don't point to any inflationary pressures coming from the labor market," observed Justin Wolfers, a professor of public policy and economics at the University of Michigan. "That doesn't resolve the question of how much is demand versus supply, as demand pressures can play out directly in the product market. But workers aren't the problem."
The latest employment figures were released amid growing fears of a Fed-induced recession as the central bank attempts to tackle inflation by jacking up interest rates, an approach that Fed Chair Jerome Powell has admitted will do nothing to address key drivers of price increases, such as supply-chain snags and Russia's war on Ukraine.
"The Fed's interest rate hikes that aim to lower inflation fail to address the root causes of inflation," Clara Wilson, a policy analyst at the Groundwork Collaborative, noted on Twitter. "So if the Fed continues down this path, workers could suffer from a recession with persistent high prices, high unemployment, and lower wages."
While experts largely described the jobs numbers as solid, some noted that the hiring slowdown could indicate more severe damage to come as the Fed aggressively tightens financial conditions month after month, without waiting to see how its policy changes are impacting the economy.
"We're clearly starting to see the effects of the Fed's rate hikes, but the labor market is still extremely strong," said Heidi Shierholz, president of the Economic Policy Institute. "However, it takes a while for higher interest rates to have a big impact and there's a huge concern the Fed has overshot and secured a recession in coming months."
"The Fed has already done enough to ensure a big decline in inflation," Shierholz added. "They should pause rate increases (and need to be ready to cut rates)."
But Fed officials, including Powell, have provided no signal that they intend to stop raising rates in the coming months.
Asked during a press conference last month whether he would be willing to pause and examine the impact of rate hikes as they ripple through the U.S. economy, Powell responded that "there is a possibility certainly that we would go to a certain level that we're confident in and stay there for a time."
"But we're not at that level," Powell said. "There's a ways to go."
Some central bankers, including Cleveland Fed President Loretta Mester, have even suggested the Federal Reserve would not be willing to stop raising rates even if the economy plunges into recession. The Fed's own projections estimate that rate hikes could throw more than a million people out of work by next year.
"We have to make sure we do enough [against inflation]," Mester said late last month.
Robert Reich, the former head of the U.S. Labor Department, warned in a blog post on Friday that the U.S. economy is "the first stages of a major slowdown" as hiring slows and "wages continue to fall behind prices." Recent data has also shown rising unemployment claims and plummeting job openings, more evidence that the labor market is loosening.
"You'd think this would lessen the likelihood of another Fed interest-rate hike--which makes it more costly for consumers to borrow, reducing their purchasing power even further," Reich wrote. "But Fed officials continue to fixate on wage growth rather than the major forces pushing up prices--especially corporate profits."
"The Fed's rate hikes will eventually hit corporate profits because corporations depend on workers (who are also consumers) to buy their goods and services," Reich continued. "But by the time the rate hikes hit profits, jobs and wages will likely have been crushed in a recession. Beware."
Concerns about the impact of Fed policy on the U.S. are rising as the central bank's rate hikes are already having damaging effects overseas. As The New York Timesreported Friday, "the Fed's moves have spurred market volatility and worries about financial stability, as higher rates elevate the value of the U.S. dollar, making it harder for emerging-market borrowers to pay back their dollar-denominated debt."
"It is a recipe for globe-spanning turmoil," the Times added, "and even recession."
That's precisely what the United Nations warned about earlier this week when it called on the Fed and other central banks to stop raising interest rates.
"The U.N. is now sounding the alarm on how the Federal Reserve's dangerous approach risks a global recession," Sen. Elizabeth Warren (D-Mass.) tweeted Monday. "The Fed's extreme interest rate hikes won't address many key drivers of inflation, but will throw millions of Americans out of work."
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Biden Applauded for Executive Order Targeting 'Insidious' Anti-Worker Practices
The president's new order takes aim at a "growing trend of employers requiring workers to sign away their rights."
Jul 09, 2021
Among the 72 initiatives packed into the far-reaching executive order President Joe Biden signed Friday are steps that labor advocates welcomed as important victories for U.S. workers, including a provision calling for the limitation of noncompete clauses that drive down wages by preventing employees from quitting for better-paying jobs.
"The measures encouraged by this EO represent a wish list progressives and other pro-competition advocates have been promoting for years, and in some cases decades."
--David Segal, Demand Progress Education Fund
Presented as an effort to promote competition in an economy increasingly dominated by a handful of massive corporations, Biden's sweeping order calls on the Federal Trade Commission (FTC)--now headed by antitrust law expert Lina Khan--to "ban or limit non-compete agreements," which the consumer advocacy group Public Citizen described as "insidious" ploys to restrict worker mobility and suppress wages.
Biden echoed that message in a speech on Friday, declaring that corporations use noncompete clauses "for one reason: to keep wages low."
Analysts estimate that tens of millions of private-sector workers are currently under some form of noncompete clause preventing them from leaving their jobs to work for--or start--a competing business within a certain period of time.
HuffPost labor reporter Dave Jamieson noted that while noncompete clauses have "traditionally been used to protect closely guarded business secrets in high-income fields... they have proliferated so much in recent years that they touch all income levels, even low-wage service work."
"In many cases, noncompete clauses are only 'agreements' in theory, since not signing one means not getting the job," Jamieson observed.
Heidi Shierholz, director of policy at the Economic Policy Institute (EPI), said Thursday that "noncompetes are ubiquitous, harmful to wages and to competition, and part of a growing trend of employers requiring workers to sign away their rights."
Biden's decision to take aim at noncompete clauses as part of a broader effort to tackle corporate concentration won applause from unions and progressives advocacy groups, who said the president's order is an important step toward reversing the decades-long trend of stagnant wages and declining worker power.
"We support President Biden's focus on workers and consumers as we seek a more competitive economy," Lee Saunders, president of the American Federation of State, County, and Municipal Employees, said in a statement. "A successful economy must serve the people who produce the goods and services that improve our lives."
Barry Lynn, executive director of the Open Markets Institute, said he is "especially pleased to see the administration move to protect America's most powerless workers and farmers."
"We hope the Biden administration stays on this path and truly stands with the people against those who seek to monopolize all opportunity, wealth, and power for themselves alone," Lynn added.
Other elements of Biden's executive order that seek to empower workers include a provision encouraging the FTC and Justice Department to "strengthen antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another."
"This EO sends a clear and unambiguous message that corporate concentration throughout our economy is a crisis-level problem."
--Alex Harman, Public Citizen
In recent years, major corporations--from Google and Apple to McDonald's and Burger King--have entered so-called "no poaching" pacts agreeing not to hire each other's workers, deals that critics say serve to drive down wages and benefits.
The president's order also urges the FTC to prohibit "unnecessary" occupational licensing restrictions, which can hinder workers from moving across state lines to find better-paying jobs in their field.
"The measures encouraged by this EO represent a wish list progressives and other pro-competition advocates have been promoting for years, and in some cases decades," David Segal, director of the Demand Progress Education Fund, said in a statement.
"From a ban on non-compete agreements that suppress wages and keep employees tied to jobs they would rather leave, to pushing for importation of cheaper prescription drugs from Canada--and from helping people switch between banks to addressing anti-competitive behavior in online marketplaces, these initiatives would improve the wellbeing of workers, small and mid-sized businesses, and consumers across essentially all major sectors of the American economy," Segal added.
Alex Harman, the competition policy advocate for Public Citizen, hailed Biden's order as "the most significant executive action against corporate monopolies in generations."
"This EO sends a clear and unambiguous message that corporate concentration throughout our economy is a crisis-level problem," said Harman. "That clarion call has been absent for decades, as administrations of both parties have let antitrust and antimonopoly enforcement fall into disrepair and decay."
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