Federal Reserve Chairman Jerome Powell says that economic pain will be inevitable in the Federal Reserve’s fight against inflation. As he put it, “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”
Powell was not joking. Consumers are being squeezed hard by the highest inflation rates in 40 years. Over the past year, adjusted for inflation, real hourly wages are down 3%. And because of a decline in hours worked as the economy slows, real weekly earnings are down even more, 3.8%.
President Joe Biden and the Democratic Party say that they are the party of the working man and woman. Really?
The data say that Democrats want to put the typical household in the poor house. Democrats are responsible for the worst inflation outlook in four decades. The Federal Reserve is not the bad actor on inflation. Powell, and the other members of the Federal Open Market Committee, which sets monetary policy, are just trying to clean up Biden’s mess. Biden embraced modern monetary theory, believing that massive deficits don’t matter. What a joke. Now, he scratches at the fleas of that discredited theory.
From 2008 until the massive deficit spending of the Biden administration, short-term interest rates were fixed near zero; yet inflation remained quiescent, averaging about 2% from 2009 to 2019. In 2020, however, federal spending surged. The first cause was then-President Donald Trump’s failure to contain trend spending growth and his spending response against COVID-19. The second cause was Biden taking office and the Democratic Party dropping money on the economy. Under the Democrats, excess federal spending surged by 18% of GDP, or $4 trillion. Deficit spending does matter.
Now, as the midterm elections approach, Democrats talk about Trump, a man whose name appears on no ballots. At the same time, they ignore the two issues that matter most to voters, the economy and inflation. But the economy matters. The Federal National Mortgage Association, Fannie Mae, and the International Monetary Fund forecast that U.S. economic growth in 2023 will be near zero or negative.
The Federal Reserve Bank of Cleveland forecasts headline consumer price index inflation for October running at 8.13% year on year. To compound the pain that consumers are feeling from negative real income growth and from sky-high inflation readings, those components of inflation that matter most to consumers are running near double-digit rates.
Year on year prices for food away from home were up 8.5% in September. On an annual basis, prices for new cars were up 9.5% in September. Prices for vehicle repairs were up 11%. Clearly consumers, the people who vote, won’t be happy on Election Day: Nov 8.
It gets even worse.
After all, many households will be downright angry when they receive their home heating bills this winter. The U.S. Energy Information Administration just released its forecast for home heating bills. It forecasts that residential natural gas prices this winter will be 22% higher than last winter. And it predicts that prices for home heating oil will be 16% higher than last winter.
Expect to be grateful for family this Thanksgiving. But that’s about it.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
