Policy

‘The greatest harm I could ever imagine’: Organized labor blasts Fed rate hikes

The Federal Reserve in Washington, D.C.
Greg Nash
The Federal Reserve in Washington, D.C., is seen on Monday, September 16, 2019.

Organized labor is expressing anger about continued interest rate hikes from the Federal Reserve, joining a chorus of voices on the left arguing that lower inflation is not worth the pain of recession.

Unions maintain that the central bank’s rate hikes are divorced from the root cause of inflation, which is affecting many different countries across a huge range of goods and services.  

By slowing demand and making it more expensive to transact throughout the economy, the Fed is essentially missing the ball, they say.

“The Federal Reserve is doing the greatest harm I could ever imagine,” Bill Spriggs, chief economist of the AFL-CIO labor union federation, said in an interview. “I consider what they’re doing right now politics, and they are making a political statement about the economy, and they are wrong. Their analysis is flat wrong.”

Carl Rosen, president of the United Electrical, Radio and Machine Workers of America, wrote in an op-ed in the Chicago Tribune in September that interest rate hikes by the Fed are beside the point when it comes to fixing the daily cost increases felt by average Americans.

“Interest rate hikes will not address the cost-of-living crisis for American workers,” he wrote. “Rather than throwing our country into a recession with interest rate hikes, our federal government should take other measures to alleviate the pain being felt by working people.”

He suggested increasing Social Security payments, reinstituting the expanded child tax credit payments and providing inflation rebates to working people, which he said “can all be paid for by taxing corporate profits and the rich. [These] would put more money in working people’s pockets, allowing them to cope with higher prices.”

Spriggs said that international supply costs are propelling prices upward, particularly with agricultural commodities hit by severe weather events related to climate change.  

Food prices are up in the U.S. 11.2 percent since last year, and groceries up more than 13 percent. Spriggs said diminished global agricultural production needs to be at the center of the inflation conversation.

He pointed to a major drought affecting rice-growing regions in China, a heat wave in Europe that destroyed much of the corn crop and massive flooding in Pakistan that wiped out huge swaths of different crops, including 20 percent of the cotton harvest. The United Nations Food and Agricultural Organization reports that food prices globally are up 5.5 percent since last year.

“It’s dangerous to the moment to tell the American people that the source of inflation is endogenous to the system, that it is related to excess demand,” Spriggs said. “Nothing could be further from the truth. Diverting us from the actual conversation that we need to be having — we, meaning human beings — is so dire.”

Commodity price increases in general, and especially within the energy sector, are identified by the U.N. Conference on Trade and Development (UNCTAD) as the major factor now driving global inflation, which “derives largely from cost increases, particularly for energy, and sluggish supply response.”

Global commodity prices are up 55.7 percent since last year, with food commodities up 23.9 percent and fuel commodities up 91.2 percent, the latest UNCTAD analysis shows.

In the face of these rising prices, the Federal Reserve has been hiking interest rates since March. And while inflation has dipped slightly over that period to 8.2 percent in September from its peak of 9.1 percent in June, it has remained above 8 percent in the U.S. for seven months in a row.  

Treasury and Fed officials were wrong in their initial characterization of inflation, calling it “transitory” before admitting their prediction missed the mark.  

The international nature of the current inflation — 9 percent in the United Kingdom, 10 percent in Germany, 7 percent in Canada — along with its stickiness in the face of Fed rate hikes have also been noted by left-leaning politicians in the U.S.

“I think [the Federal Reserve is] hurting the situation,” Sen. Bernie Sanders (I-Vt.) said on NBC’s “Meet the Press” last week. “I think it is wrong to be saying that the way we’re going to be dealing with inflation is by lowering wages and increasing unemployment. That is not what we should be doing.”

“This inflation thing is a real issue. It is a global issue. But at a time when working families are struggling and the people on top are doing phenomenally well, I don’t think you go after working people,” he said, referring to the fact that the Fed’s interest rate hikes have prompted worries of an upcoming recession.

For its own part, the Federal Reserve has pointed to a labor shortage, increased wages and supply chain issues as the reasons for inflation.

At the rate-setting committee’s meeting in September, Fed bankers said they expected inflation to persist, citing “labor market tightness and the resulting upward pressure on nominal wages, continuing supply chain disruptions, and the persistent nature of increases in services prices, particularly shelter prices.”

However, they acknowledged “global headwinds” adding to price increases, including a risk of recession in Europe, an economic slowdown in China and the economic fallout of the war in Ukraine.

Despite protests from labor, interest rates are expected to rise another 1.5 percentage points to 4.6 percent next year from just above the 3.08 percent effective rate recorded Monday.

The disagreement between organized labor and the Fed comes as the popularity of labor unions has risen to its highest level in nearly 60 years, according to an August poll by polling agency Gallup. Seventy-one percent of Americans approve of labor unions, up from 68 percent in 2021, the highest level since 1965.

“The latest approval figure comes amid a burst of 2022 union victories across the country, with high-profile successes at major American corporations such as Amazon and Starbucks. The National Labor Relations Board reported a 57 percent increase in union election petitions filed during the first six months of fiscal year 2021,” Gallup said in a report released with the poll, though 84 percent of respondents said that no one in their household was a union member.

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