XPost: alt.politics.economics, talk.politics.guns, alt.fan.rush-limbaugh   
   XPost: sac.politics   
   From: zinn@reno.us   
      
   In case the U.S. economy wasn't hurting enough already, the Federal   
   Reserve has a message for Americans: It's about to get much more painful.   
      
   Fed Chair Jerome Powell made that amply clear this week when the central   
   bank projected its benchmark rate hitting 4.4% by the end of the year —   
   even if it causes a recession.   
      
   "There will very likely be some softening of labor market conditions,"   
   Powell said on Wednesday. "We will keep at it until we are confident the   
   job is done."   
      
   In plain English, that means unemployment. The Fed forecasts the   
   unemployment rate to rise to 4.4% next year, from 3.7% today — a number   
   that implies an additional 1.2 million people losing their jobs.   
      
   "I wish there were a painless way to do that," Powell said. "There isn't."   
      
   Hurt so good?   
   Here's the idea behind why boosting the nation's unemployment could cool   
   inflation. With an additional million or two people out of work, the newly   
   unemployed and their families would sharply cut back on spending, while   
   for most people who are still working, wage growth would flatline. When   
   companies assume their labor costs are unlikely to rise, the theory goes,   
   they will stop hiking prices. That, in turn, slows the growth in prices.   
      
   But some economists question whether crushing the job market is necessary   
   to bring inflation to heel.   
      
   "The Fed clearly wants the labor market to weaken quite sharply. What's   
   not clear to us is why," Ian Shepherdson, chief economist at Pantheon   
   Macroeconomics, said in a report. He predicted that inflation is set to   
   "plunge" next year as supply chains normalize.   
      
   The Fed fears a so-called wage-price spiral, in which workers demand   
   higher pay to stay ahead of inflation and companies pass those higher wage   
   costs on to consumers. But experts disagree that wages are the main driver   
   of today's red-hot inflation. While worker pay has risen an average of   
   5.5% over the last year, it's been eclipsed by even higher price   
   increases. At least half of today's inflation comes from supply-chain   
   issues, noted former Fed economist Claudia Sahm in a tweet.   
      
      
   Sahm noted that lower-wage workers today have both benefitted the most   
   from pay increases and been hurt the most by inflation — inflation driven   
   by higher spending by wealthy households rather than people lower down the   
   ladder.   
      
   Rising rates, falling jobs   
   While the exact relationship between wages and inflation remains under   
   debate, economists are much clearer on how raising interest rates puts   
   people out of work.   
      
   When rates rise, "Any consumer item that people take on debt to buy —   
   whether that's automobiles or washing machines — gets more expensive,"   
   said Josh Bivens, research director at the Economic Policy Institute.   
      
   That means less work for the people making those cars and washing   
   machines, and eventually, layoffs. Other parts of the economy sensitive to   
   interest rates, such as construction, home sales and mortgage refinancing,   
   also slow down, affecting employment in that sector.   
      
   In addition, people travel less, leading hotels to reduce staffing to   
   account for lower occupancy rates. Businesses looking to expand — say, a   
   coffee shop chain opening a new branch —  are more hesitant to do so when   
   borrowing costs are high. And as people spend less on travel, dining out   
   and entertainment, those hoteliers and restaurateurs will have fewer   
   customers to serve and eventually cut back on staff.   
      
   "In the service economy, labor is the biggest component of your cost   
   structure, so if you're looking to cut costs, that's where you'll look   
   first," said Peter Boockvar, chief investment officer at the Bleakley   
   Financial Group.   
      
   While in Boockvar's view hiking rates is needed, the Fed's tactics strike   
   him as aggressive. "I just have a problem with the [Fed's] rapidity and   
   scale," he said. "They're coming on so fast and strong, I'm just worried   
   the economy and markets can't handle it."   
      
   Layoffs ahead   
   In the meantime, the Fed's existing rate hikes have put about 800,000 job   
   losses in the pipeline, according to predictions from Oxford Economics.   
      
   "When we look at 2023, we see almost no net hiring in the first quarter   
   and job losses of over 800,000 or 900,000 in the second and third quarter   
   combined," said Nancy Vanden Houten, Oxford's lead U.S. economist.   
      
   Others predict an even harder landing, with Bank of America expecting a   
   peak unemployment rate of 5.6% next year. That would put an additional 3.2   
   million people out of work above today's levels.   
      
   Some policy makers and economists have called out the Fed's aggressive   
   rate hike plans, with Senator Elizabeth Warren saying they "would throw   
   millions of Americans out of work" and Sahm calling them "inexcusable,   
   bordering on dangerous."   
      
      
   Powell promised pain, and many are questioning just how much pain is   
   necessary.   
      
   "Inflation will come down quite a bit faster if we actually hit a   
   recession. But the cost of that is going to be much bigger," said Bivens   
   said.   
      
   The danger, he added, is that the Fed has set off a runaway train. Once   
   unemployment starts rising sharply, it's hard to make it stop. Rather than   
   neatly halting at the 4.4% rate projected by Fed officials, the jobless   
   numbers could easily keep rising.   
      
   "This idea that there's an inflation dial that the Fed can just haul on   
   really hard and leave everything else untouched, that's a fallacy," Bivens   
   said.   
      
   Instead of the soft landing for the economy the Fed says it's aiming for,   
   Bivens added, "we are now pointing the plane at the ground pretty hard and   
   hitting the accelerator."   
      
   https://www.cbsnews.com/news/fed-interest-rates-unemployment-   
   inflation/?intcid=CNI-00-10aaa3b   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)