Some economists concerned aggressive interest rate hikes do more harm than good

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• Judy Woodruff:

  Word came today from a reliable source that the Federal Reserve may start to taper its string of consistent interest rate hikes as soon as next month. At the same time, the Central Bank tries to tamp down inflation.

  But that doesn't mean that higher interest rates are over yet.

  And, as William Brangham tells us, some Democrats and economists worry that the Fed has already hit the brakes too hard.

• William Brangham:

  Judy, the Fed has raised interest rates six times this year. Today, Federal Reserve chair Jay Powell suggested again during his speech at the Brookings Institution that a seventh hike, albeit a smaller one, is on the way next month.

  In a wide-ranging interview, he signaled rates could remain high for some time to combat inflation. And he said that, while rising wages were not the reason inflation initially spiked, he said they're a key part of the puzzle now.

• Jerome Powell, Federal Reserve Chairman:

  The inflation that we saw at the beginning of this episode in — back in March of '21 was not really related to wages at all. It was related to tightness in goods markets, largely due to supply chain issues.

  Over time, though, inflation has now spread broadly through the economy. And while I would still say that the inflation we're seeing now is not — is not principally related to wages, we think that wage increases are probably going to be a very important part of the story going forward.

• William Brangham:

  Many progressives have criticized the pace and the scope of these rate hikes.

  Rakeen Mabud is among those voices. She's the chief economist and managing director of policy and research at a progressive think tank known as The Groundwork Collaborative.

  Rakeen Mabud, thank you very much for being here.

  I know you listened to what Jay Powell had to say today. Were you at all encouraged by what he had to say, or do you still think that the medicine is worse than the cure?

• Rakeen Mabud, The Groundwork Collaborative:

  You know, what I heard today is Chair Powell will say that he's willing to do whatever it takes to bring prices down.

  I think a more cautious approach is really warranted. As you said, we have seen six rate hikes this year. And Chair Powell himself said today that we have not yet seen the full effect of those rate hikes play out in our economy yet. So, we really risk overshooting. We really risk throwing the economy into a devastating recession that would put millions of people out of work.

  And that's just not a price that we should ask the very people who have been bearing the brunt of higher prices to bear.

• William Brangham:

  Do you look at the economy today — and we got some more good news today — that job growth is growing, that the economy does seem — it's maybe not growing as fast as it was before, but it does seem like it's doing better.

  Does that give you any sense that maybe Powell and the Fed have threaded this needle appropriately?

• Rakeen Mabud:

  We really do have a strong labor market. That's been fantastic to see over the course of this recovery.

  And that's, frankly, a direct result of Congress and the administration's actions to invest in the people who keep our economy going. After the Great Recession, we — it took us six years to really recover. We have done that much more quickly this time around.

  I am really concerned that Chair Powell's actions are neither addressing the root causes of inflation that we're seeing today, namely, supply chain snarls, a war in Ukraine, corporate profiteering, and, also, it's going to potentially really harm the millions of people who are really struggling with higher prices already.

• William Brangham:

  When you look at that pain in the economy, who is that hurting the most?

• Rakeen Mabud:

  It's always the most vulnerable people in our economy who are hurting the most, right?

  If you're poorer, and the price of essentials goes up, then you have less of your budget to pay your rent and to pay for other things that you need to pay. And that's always the case. So — and, similarly, an aggressive rate hike campaign, like the one that Chair Powell is in the midst of, would really, really harm some of the most marginalized workers in our economy.

  So, economists such as Larry Summers have advocated for unemployment rates as high as 10 percent to combat inflation .When you unpack what that actually means, that means unemployment rates of nearly 20 percent for Black workers. That means families not being able to put food on the table, food which is already too expensive because of rampant corporate profiteering.

• William Brangham:

  Now, you mentioned several things that are driving this, supply chain issues, the war in Ukraine, and profiteering.

  The companies argue they're not profiteering. But let's just say, if we take your argument that you believe that they are, what is a policy remedy for that? That's a very tricky thing to try to identify and to say, aha, we have got an example of you jacking up prices here, and, thus, we're going to do X about that.

  What would you prescribe.

• Rakeen Mabud:

  We actually do have a lot of evidence that profiteering is happening.

  My organization and I have listened to hundreds of earnings calls. And what we hear on these earnings calls is very clear. CEOs are very forthright to their investors that inflation has been good for business and that they're raising prices on the consumer in order to bring in record profits.

  I mean, just today, we saw the highest profits on record for nonfinancial corporations in the U.S. at $2.08 trillion. And so I think that's important to note, that we actually do know that this is happening.

  In terms of policy solutions, there are a range of tools that policymakers have to address inflation and higher prices. President Biden recently proposed an excess profits tax on oil and gas companies. I think that's a really good start. I would love to see a bigger tax on windfall profits more generally, so that companies start reinvesting those profits into making better products and bringing down prices and improving workers lives, frankly, rather than padding the pockets of their shareholders.

  We could also make price gouging illegal. Three-quarters of states have a price gouging statute on the books. We could do that at the federal level and just say, this is illegal behavior. And then, finally, there are lots of regulatory things that we can also see — we can also do.

  So, the Federal Trade Commission and the Department of Justice can tackle the really excess corporate power and consolidation that we have in our economy that's been driving a lot of these price hikes and the pricing power that these companies have to jack up prices on consumers. They can also tackle exploitative and extractive behavior.

  So, I think while we are often really quick to go to the Fed to address issues of inflation, there's actually a much broader set of policy tools that we can use in order to bring prices down.

• William Brangham:

  I want to ask you about the sound we heard from Jay Powell, who's arguing that the tight labor market, which drives wages up, which a lot of workers love, to have more in their paycheck, Powell is arguing that that's exacerbating the inflationary pressures.

  Do you believe that that's true? And, again, if so, what can be done about that?

• Rakeen Mabud:

  I don't believe that's true.

  I mean, as I said, they're — it's pretty clear what the sources of inflation are. It's corporate profiteering. It's supply chain issues. It's the war in Ukraine that's been driving up the price of commodities. It's not workers. Worker wages have been really low for a very, very long time. I think we should be encouraged by the wage growth we're seeing, because, when workers do well, they're spending that money.

  They're putting — investing that money back into our economy, and that buoys all of us. So, I think it's really important not to blame workers, who are already the folks who are really feeling the pinch, for the crisis that we're in.

• William Brangham:

  All right, Rakeen Mabud at The Groundwork Collaborative, thank you so much for being here.

• Rakeen Mabud:

  Thank you so much.