Animal Spirits: Powell Wants You to Lose Your Job

Markets sank following the Fed’s September meeting. While the bank raised interest rates 0.75 percent, in line with expectations, the Fed warned that more “pain” would be needed to slow inflation.

That pain is in the form of job losses. Nothing slows the economy quite like someone losing their job. By losing the income needed to buy goods and services – whether essential ones or luxuries – real cutbacks in spending can occur.

A drop in the stock market won’t cut it. Even with the S&P 500 down 23 percent from last year’s peak, that’s not enough. It doesn’t matter that gas prices are down, or other commodities as well.

Or that mortgage rates have now doubled in the past year, and are back to levels last seen in 2008.

The fact remains that the job market has remained strong, even with signs of a slowing economy in the past few months. That’s the fast way to slow the economy, rather than let consumers adjust to the rapid interest rate increases in the past few months.

The Fed’s steep interest rate hikes this year will likely look like a policy error, given how late the Fed was to start interest rate, and the central bank’s history of overcorrecting for past mistakes.

The Fed has shown that it’s willing to break markets and throw the job market off the cliff in order to slow inflation. It doesn’t matter that millions may lose their job in the process.

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