The Fed’s decision today to raise interest another 0.75% is designed to “inflict much more pain” on the economy to try to get inflation under control, a July 26 Bloomberg analysis argued. “A growing number of analysts say it will take a recession—and markedly higher joblessness—to ease price pressures significantly,” the article added sagely.
The only dispute among all the experts, such as they are, seems to be over how high interest rates will have to go to inflict enough pain. “The markets” are pricing that in at 3.5% by year end. Former Treasury Secretary Lawrence Summers says rates will have to go much higher, as much as 5%: “My instinct is that you’d not see rates cut as soon as people think.”
Americans are being assured that all the pain is necessary. Bloomberg wrote: “Policymakers have little choice but to push rates higher because they can’t afford to allow inflation expectations to escalate, ex-Fed Governor Laurence Meyer said. If that happened, the battle to contain inflation would be lost because companies and workers would begin to act in ways that would push prices ever higher.”
Tomorrow the government’s Bureau of Economic Analysis will inform Americans whether or not the pain they are already feeling should be officially called a “recession.” Fox had a useful “man on the street interviews” story today which included the following: “I think we’re in a recession,” Lawrence, a 70-year Alexandria, Virginia resident, told Fox News. “Interest rates have gone up, the economy seems to be slowing down, the price of cars is unreal.” Lauren, also from Alexandria, said: “Absolutely, we’re in a recession. Have you checked gas prices lately? Have you checked the interest rates?”
