Expect Job Losses From Rate Hikes, There Is Chance Economy Won’t Be Killed
Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, said he is optimistic that Fed policies can slow inflation, that strong employment means job losses could be “smaller than what we’ve seen in other situations,” and that the economy can absorb interest rate hikes.
The U.S. central bank raised the federal funds rate by 75 basis points to the 3-to-3.25-percent range during its September meeting. The third straight three-quarter point increase pushed borrowing costs to the highest since 2008. More rate hikes are expected.
“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” Fed Chairman Jerome Powell said during a press conference.
Bostic seems more optimistic and said he believes that the Federal Reserve can achieve its goal of 2 percent inflation without damaging the economy too badly. The Consumer Price Index increased 8.3 percent in August, 8.5 percent in July and 9.1 percent in June — the highest rate in 40 years.
“I do think that we’re going to do all that we can at the Federal Reserve to avoid deep, deep pain.” Bostic told CBS’s “Face the Nation.”
Bostic acknowledged there will probably be job losses as a result of the Fed’s actions, but they may not be as big as in other Fed tightening. “There is a really good chance that if we have job losses it will be smaller than what we’ve seen in other situations,” he said on “Face the Nation.”
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The unemployment rate for Black men has fallen below its pre-pandemic level but remains nearly twice that of white male workers, according to a report by the Center For American Progress.
The overall unemployment rate rose from 3.5 percent to 3.7 percent in August, but for African Americans, it was much higher. It rose to 6.4 percent in August from 6 percent the previous month, with the Black labor participation rate decreasing for the third consecutive month, according to the U.S. Bureau of Labor Statistics. This is despite the fact that companies say they are having trouble finding labor.
“The first thing that tends to happen when the labor market is at an inflection point is that hiring slows down,” said William Spriggs, Howard University professor and chief economist at the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO).
“Black workers are the canary in the coal mine because they face discrimination and they tell you what employers are really doing,” Spriggs told MarketWatch.
They often have a harder time getting hired and promoted, studies show. “At some point, you keep getting pushed further and further back. You just say, forget it, and you walk away,” said Spriggs. “When hiring slows, Black workers get pushed so far back that they drop out.”
Some people believe the Fed hasn’t done enough to reign in inflation. Wharton professor Jeremy Siegel accused the Fed of waiting too long to tackle inflation — one of the biggest policy mistakes in its 110-year history, he told CNBC.
Others are more pessimistic than Bostic and want the Fed to back off its aggressive interest-rate hikes before something breaks.
Billionaire private-equity and real-estate investor Barry Sternlicht, CEO and chairman of property investor Starwood Capital Group, said the Fed has done enough to curb inflation and should pause to assess how its interest-rate hikes are impacting the economy.
“You’re going to see the rollover of the economy. They’re going to have to lower rates because the economy will crumble. Who would run a business like this?” he asked. “Now that we’re building momentum and people are getting employed and wages are rising, they want to stomp on the whole thing and end the party.”
Hopes that the Fed could be headed for a “pivot” toward less-aggressive rate hikes helped U.S. stocks surge since the beginning of October, Marketwatch reported. The Dow Jones Industrial was on track for its biggest back-to-back gains in more than two-and-a-half years.
The S&P 500 rose 2.8 percent on Tuesday, the Dow gained 2.5 percent and the Nasdaq Composite rose 3 percent.