‘A return to the bad old days’ at the Fed

Nov 28, 2022

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Fed Chair Jerome Powell has increasingly leaned into the idea that the labor market will have to weaken in order to tame inflation — even while acknowledging wage growth is not a primary driver of price pressures.

Progressives aren't having it.

As job losses mount in the tech sector, labor advocates and Democratic lawmakers are pushing back on what they say is a longstanding institutional bent at the central bank — that workers must bear the brunt of the fight against inflation .

"That's a return to the bad old days," Benjamin Dulchin, head of the Fed Up Campaign, a coalition of community groups and labor unions, tells our Victoria Guida. "Overreacting and sticking it to working people because that's the only thing they know they can do, it's the same old bias."

More from Victoria: "Fed Up was among the progressive groups that praised the Republican Powell when he declared in 2020 that the Fed would focus more on workers by holding off on raising interest rates for as long as possible — defying decades of central bank policy in adopting a new, labor-centered framework in the wake of the civil unrest after George Floyd's murder.

"But Powell — who will address the labor market situation at a Brookings Institution event on Nov. 30 — is now battling persistent and raging inflation, a post-pandemic trend that the Fed didn't see coming. That has prompted policymakers to return to their traditional focus on fighting inflation by cranking up borrowing costs even if it leads to a surge in joblessness and triggers a recession."

Jerome Powell stands in front of an American flag.

Fed Chair Jerome Powell has suggested pain in the job market is unavoidable in order to tame inflation. | Patrick Semansky/AP Photo

Jason Furman, who chaired the Council of Economic Advisers under President Barack Obama, tells Victoria the Fed's goal isn't to weaken the labor market — it's to have lower inflation.

"They're saying, if unemployment starts to go up, we're still going to stick with it," he said.

What do progressives want the Fed to do?

Lindsay Owens, executive director of progressive think tank Groundwork Collaborative, argued that it should be opportunistic companies, not workers, that pay the cost of bringing down inflation, through a tax on so-called excessive profits.

And Skanda Amarnath , executive director of worker advocacy group Employ America, said the Fed could also slow economic activity without aiming to push up unemployment.

"That's the middle ground," he told Victoria. "They've kind of just said that doesn't exist, which is wrong and problematic.

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DRIVING THE WEEK

New York Fed President John Williams speaks at the Economic Club of New York at 12 p.m. … Consumer confidence index released Tuesday … Revised third-quarter GDP data released Wednesday … Senate Banking hearing for FDIC nominees Wednesday … Job openings and quits data released Wednesday … Fed Chair Jerome Powell and Fed Governors Lisa Cook and Michelle Bowman speak Wednesday … PCE inflation and consumer spending data released Thursday … Fed Vice Chair Michael Barr and Governor Bowman speak Thursday … Jobs report released Friday.

FDIC HEARING — In case you missed it, the Senate Banking Committee dropped a pre-Turkey Day heads-up last week: It will hold a nomination hearing Wednesday for President Joe Biden's picks to lead the Federal Deposit Insurance Corp.

From our Sam Sutton: "The hearing will cover the nominations of Martin Gruenberg to return as FDIC chair as well as Republicans Travis Hill and Jonathan McKernan to join the agency's board. The committee will also hear from Kimberly Ann McClain, who is nominated as HUD assistant secretary."

SBF'S WASHINGTON ASCENT — WSJ's Paul Kiernan: "Sam Bankman-Fried's multimillion-dollar Washington charm offensive revolved around a small financial regulator and a group of senators with whom the purported crypto billionaire found common cause in a bid for light-touch regulation of digital assets. …

"Mr. Bankman-Fried's ascent in Washington shows how, by doling out enough cash to politicians and interest groups, even a 30-year-old in cargo shorts can win a seat at the table for critical policy debates.

— One sign the party has ended: The crypto revelers frequenting Miami's clubs have completely disappeared, the FT's Madison Darbyshire reports.

RAIMONDO'S ROLE — NYT's Ana Swanson profiles Commerce Secretary Gina Raimondo: "These days, Ms. Raimondo, a former Rhode Island governor, is the most important phone call in Washington that many chief executives can make . As the United States embarks on its biggest foray into industrial policy since World War II, Ms. Raimondo has the responsibility of doling out a stunning amount of money to states, research institutions and companies like SkyWater."

Regulatory Corner

CHEVRON PERMIT — Our Matt Daily: "The Treasury Department granted permission Saturday for oil giant Chevron to produce and export oil from Venezuela following the South American country's decision to restart talks with opposition groups. … The move could add supply to the global oil market, which may ease fuel prices and speed the declines in U.S. gasoline prices."

CHOPRA SLAMS 'FAIRY TALE' PLANS — From Victoria: "CFPB Director Rohit Chopra on Wednesday questioned whether any of the nation's big banks would be able to safely go through the bankruptcy process if they were to fail, in a broadside against both the lenders and his fellow regulators."

Economy

BLACK FRIDAY — U.S. retail sales on Black Friday were up 12 percent from a year earlier, excluding auto sales, according to Mastercard's SpendingPulse, which measures in-store and online retail sales, and isn't adjusted for inflation. That included a 19 percent boost for apparel, 4 percent increase on electronics and 21 percent rise at restaurants.

FED MINUTES — Sam again: "Federal Reserve officials earlier this month discussed slowing their pace of interest rate increases , according to meeting minutes released Wednesday, citing potential financial stability risks."

PAST PEAK — FT's Valentina Romei: "Key data indicators suggest that this year's rampant global inflation has peaked and that the pace of headline price growth is set to slow in the coming months."

BUSINESS TRIP — NYT's Jane L. Levere: "Business travel came back this year more strongly than most industry analysts had predicted in the depths of the pandemic, with domestic travel rebounding by this fall to about two-thirds of the 2019 level. But in recent weeks, it appears to have hit a new hurdle — companies tightening their spending in a slowing economy ."

GREAT MISMATCH — WaPo's Abha Bhattarai: "Nearly three years into a pandemic that reshaped workplace norms and put the balance of power squarely in the hands of employees, the tides are shifting again . The job market — although still hot — is slowing, and many Americans who had been working from home are being called back into the office."

Markets

BOND MARKETS SEE RECESSION — Bloomberg's Michael Mackenzie: "The bond market is zeroing in on a US recession next year , with traders betting that the longer-term trajectory for interest rates will be down even as the Federal Reserve is still busy raising its policy rate.

"Long-dated Treasury yields are already below the Fed's overnight benchmark range — currently 3.75% to 4% — and there's still an extra percentage point of central bank increases priced in for the coming months."

BRACING FOR ANOTHER STOCK SLUMP — WSJ's Hannah Miao: "Investors say recent optimism in the markets could soon evaporate as corporate profits get squeezed further. Market participants often use the ratio of a company's share price to its earnings as a gauge for whether a stock appears cheap or pricey. If the earnings side of the equation pulls back, that could make the market look overpriced."

OIL VOLATILITY — WSJ's Joe Wallace and Anna Hirtenstein: "OPEC and its allies are due to make a big call on oil production next week, a day before expanded sanctions are set to strike Russia's energy industry. The potential impact of these moves is helping shroud the oil market in uncertainty at a time when coronavirus outbreaks are hammering demand in China."

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Fly Around

Protests against Covid restrictions spread across China on Sunday as citizens took to the streets and university campuses , venting their anger and frustrations on local officials and the Communist Party. — Bloomberg

Western sanctions imposed over the invasion of Ukraine are digging ever deeper into Russia's economy , exacerbating equipment shortages for its army and hampering its ability to launch any new ground offensive or build new missiles. — WaPo's Catherine Belton and Robyn Dixon

France may try to negotiate some exemptions from the duties and limits imposed by the U.S. anti-inflation act but Europe must act to protect the bloc's economic interests , Finance Minister Bruno Le Maire said on Sunday. — Reuters' Dominique Vidalon

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