Businesses looking to expand - say, a coffee shop chain opening a new branch - are more hesitant to do so when borrowing costs are high. In addition, people travel less, leading hotels to reduce staffing to account for lower occupancy rates. Other parts of the economy sensitive to interest rates, such as construction, home sales and mortgage refinancing, also slow down, affecting employment in that sector. That means less consumer demand for those cars and washing machines, and less work for the people who make them - and eventually, layoffs. When rates rise, "Any consumer item that people take on debt to buy - whether that's automobiles or washing machines - gets more expensive," said Josh Bivens, research director at the Economic Policy Institute. While the exact relationship between wages and inflation remains under debate, economists are much clearer on how raising interest rates puts people out of work. Sahm noted that lower-wage workers today have both benefitted the most from pay increases and been hurt the most by inflation - while that inflation is driven by higher spending by wealthy households rather than people lower down the ladder. Why do it? /pbNEjKf93V- Claudia Sahm September 22, 2022 With enough demand destruction, central banks can lower inflation now, but only temporarily and with great pain. He predicted that inflation is set to "plunge" next year as supply chains normalize.Ī large portion of US inflation (chart) and very large portion of German inflation is due to supply side factors. What's not clear to us is why," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a report. "The Fed clearly wants the labor market to weaken quite sharply. "And I take very seriously that unemployment is painful, and that its costs have been disproportionately concentrated among groups that have traditionally been marginalized."īut some economists question whether crushing the job market is necessary to bring inflation to heel. "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, said Monday in a speech. When companies assume their labor costs are unlikely to rise, the theory goes, they will stop hiking prices. With an additional million or two people out of work, the newly unemployed and their families would sharply cut back on spending, while for most people who are still working, wage growth would flatline. Here's the idea behind why boosting the nation's unemployment could cool inflation.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |