Inflation: Illinois’ short-term aid, Fed rate hikes, no gov’t intervention

Illinois Gov. J.B. Pritzker this month announced an Illinois Family Relief Plan to save consumers coping with inflation $1 billion in 2022 by freezing or lifting taxes on gasoline and groceries, and offering a one-year property-tax rebate of up to $300 this year.

 

In Washington, the Federal Reserve Board is expected to raise benchmark interest rates next month, and it may make additional hikes later this year.

 

The goal of the central bank is to cause people to make credit more expensive to discourage spending and encourage saving, decreasing demand, which ideally would result in businesses lowering prices to attract customers. However, that ignores less-flexible spending on health care, housing, education, child-care, food, heating and more.

 

“While so-called inflation hawks are quick to highlight the cost of higher prices, they rarely, if ever, mention the costs associated with the higher interest rate policy they recommend – costs that include higher unemployment and lower wages for working people,” said Martin Hart-Landsberg, a Professor Emeritus of Economics at Lewis and Clark College in Portland, Ore.

 

Indeed, after a Fed rate increase, mortgage rates will probably go up, and variable-interest debt such as credit cards are sure to rise. However, interest rates paid TO consumers through savings accounts, Certificates of Deposits or Money Market accounts historically don’t increase, at least for a while.

 

Some economists warn that a rate hike will hurt everyday workers, who could lose pay or jobs, justified by the Fed’s description of the economy as having a labor shortage.

 

“There’s no ‘labor shortage’ pushing up wages,” said former Labor Secretary Robert Reich. “There’s a shortage of good jobs paying adequate wages to support working families. Raising interest rates will worsen this shortage.

 

“There’s no ‘wage-price spiral’ either, even though Fed chief Jerome Powell has expressed concern about wage hikes pushing up prices,” continued Reich, professor of public policy at the University of California- Berkeley and author of Saving Capitalism: For the Many, Not the Few.

 

“To the contrary, workers’ real wages have dropped because of inflation. Even though overall wages have climbed, they’ve failed to keep up with price increases – making most workers worse off in terms of the purchasing power of their dollars.”

 

The biggest sectors driving inflation are energy prices and auto sales, so a logical reaction – a serious response – would seem to be targeting those responsible for undesirable pricing: doing something about oil and gas sellers, and automakers and used-vehicle dealers.

 

The federal government has anti-trust tools it doesn’t use much, and price-controls power it’s used even less. Republican President Richard Nixon by Executive Order in 1970 imposed a 90-dat freeze on wages and prices; Democratic President John Kennedy didn’t resort to that, but in 1962 intervened twice in the steel industry, brokering a “non-inflationary” contract with the Steelworkers and an agreement to refrain from price hikes by 11 steel companies (which a few temporarily violated).

 

Publications ranging from The Guardian to New York Magazine have endorsed price controls.

Or, government could try something different.

 

“We need new policies that can transform our economy with the aim of employing more people, working significantly shorter workweeks under conditions that are humane and fulfilling, for a living wage, producing the goods and services required to meet majority needs in socially and environmentally sustainable ways,” Hart-Landsberg said.