Why? Feds Plan to Boost Unemployment

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If you thought you thought the U.S. economy wasn’t hurting enough and it appears that the Federal Reserve has a message to Americans that it’s getting more difficult.

Fed Chairman Jerome Powell made that amply evident this week, as the bank forecast its benchmark rate to be 4.4 percent by the close of the year, even if it triggers an economic recession.

“There will very likely be some softening of labor market conditions,” Powell stated on September 21, in his forecast for the economy. “We will keep at it until we are confident the job is done.”

In simple English, this refers to unemployment. The Fed anticipates the unemployment rate to climb to 4.4 percent in the coming year, up from 3.7 percent today — which could mean the possibility of an additional 1.2 million jobless people.

“I wish there were a painless way to do that,” Powell stated. “There isn’t.”

The idea behind increasing unemployment in the country could help to curb inflation. With an extra million or two working, those who have been laid off and their families will dramatically decrease spending as for those who are employed wages would stagnate. When businesses assume that they will not have to pay for their employees, and their labor costs are likely to increase, the argument is that they’ll stop increasing prices. This, in turn, reduces the rate of price growth.

“I do anticipate that accomplishing price stability will require slower employment growth and a somewhat higher unemployment rate,” Susan Collins, president of the Federal Reserve Bank of Boston spoke Monday in an address. “And I take very seriously that unemployment is painful, and that its costs have been disproportionately concentrated among groups that have traditionally been marginalized.”

However, some economists are skeptical that cutting jobs is needed for bringing down inflation.

“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 the report. He predicted that inflation was expected to “plunge” next year as supply chains begin to normalize.