Why the Fed is pushing unemployment

Why the Fed is pushing unemployment

  • At its recent meeting on September 21, the Fed raised interest rates by 0.75%.

The recent increase in interest rates of 0.75%, announced at the September 21 meeting of the Federal Reserve, was accompanied by a warning from Chairman Jerome Powell. He said that it will be almost impossible for the central bank to beat inflation without hundreds of thousands of Americans losing their jobs.

Fed officials forecast the unemployment rate to rise to 4.4% next year from 3.7% in August as borrowing costs rise and the economy slows.

The increase in the unemployment rate over the course of a year would put more than a million workers out of their current jobs and leave millions more unable to find better jobs or higher wages, experts say.

The Fed knows that its past and future rate hikes will contribute to higher unemployment and it won’t stop fighting inflation for it. Powell along with other specialists believe that the labor market is too strong to allow inflation to subside.

One of the Fed’s obligations, under federal law, is to keep both unemployment and inflation low. For that, it cuts interest rates to stimulate the economy. Otherwise, it raises rates to slow down the economy when inflation starts to rise.

The current combination of low unemployment and record job openings are driving a rise in wages, forcing companies to raise prices to pay for higher labor costs.

Powell has said on several occasions that the Fed must “balance” the labor market before inflation returns to normal levels. This implies leaving people without work and with fewer job opportunities.

Some experts tell The Hill that the Fed’s lack of immediate action after having rates near zero during the pandemic could lead to a recession and job losses that could stretch for many years.

However, Powell says that the monetary policies undertaken, such as three consecutive increases of 0.75% is a necessary compensation to avoid a worse recession.

“If we want to light the way to another period of a very strong labor market, we have to leave inflation behind.. I wish there was another painless way to do it. There isn’t,” she said.

Melissa Galbraith
Melissa Galbraith is the World News reporter for Globe Live Media. She covers all the major events happening around the World. From Europe to Americas, from Asia to Antarctica, Melissa covers it all. Never miss another Major World Event by bookmarking her author page right here.