Photo: Fed Chair Jerome Powell being sworn in for his second term in office
Federal Reserve Chairman Jerome Powell gave a highly-anticipated speech today at a major gathering where he doubled down on his determination to crash the economy to resolve the inflation crisis on the backs of workers. Powell, one of the most powerful economic officials in the country, addressed the Fed’s annual policy conference in Jackson Hole, Wyoming, and forcefully reaffirmed his commitment to the existing strategy of aggressively raising interest rates “until we are confident the job is done.”
Interest rates are a key tool for the Federal Reserve. Lowering interest rates means that more money circulates in the economy and the pace of growth tends to speed up, while raising rates makes the economy slow down. If the interest rate hikes are extreme enough, then the economy can enter a recession, which slows down inflation because people simply do not have enough money to make purchases. This was the policy pursued by infamous Fed Chair Paul Volcker in the 1980s, who Powell praised in his speech.
Powell employed a favorite trick of capitalist economists — use stale, technical language unfamiliar to the vast majority of people to disguise the utter cruelty of what they are advocating. Take a few passages from his speech for instance.
“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions.”
Translation: “Below-trend growth” means an economic crisis, and a “soft” labor market means one in which there is more unemployment. Powell is telling us to get used to it — a recession where you lose your job is just the price you have to pay to get inflation under control.
“The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers.”
Translation: This means that it is too easy for workers to find jobs, which gives them leverage to secure higher wages. Because the “supply of available workers” is lower than capitalists’ demand for them, bosses are fighting over who gets to hire a worker, rather than unemployed workers fighting over who gets the available job. This may sound great to most people, but it is deeply disturbing to Powell and his fellow capitalists.
“There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.”
Translation: To “moderate demand” means take money away from workers so they can not spend it. This, Powell is arguing, would bring down prices by lowering the demand for goods — and he is very determined to see that it happens.
Powell himself, however, will certainly not be participating in the “moderation of demand.” He grew fabulously wealthy during his career as a finance capitalist, the highlight of which was his tenure as a partner at the $376 billion firm The Carlyle Group.
What the Federal Reserve is attempting to carry out is essentially a type of controlled burn — the economy goes into a recession but not for long, just enough to allow bosses to reestablish the upper hand in the job market and put a major dent in the purchasing power of working-class households. Powell is insisting that this can be a managed and orderly process, where small, heavily indebted firms may go out of business, but the big monopolies that the Fed ultimately serves come out unscathed.
This is a dangerous bet to place on an economy that has sustained itself since the 2008 crisis on ultra-low interest rates, a state of affairs that has fueled wild speculation that could come crashing down in unforeseen ways. But for Powell and the Fed, one matter is a sure thing — as long as they’re in charge, workers are the ones who will be expected to make the sacrifices.