The Fed’s Rate Hike Is A Terrible Idea And It Will Backfire On America’s Working Class.

The concept of raising interest rates to slow down an overheated economy predates the end of the gold standard when it somewhat worked. The purpose is to make borrowing more expensive so it is less attractive and pushes financial planning a bit farther down the road from the immediate desires of the people to raise their standard of living. It works “IF” the cause of the inflation is excess demand in the economy and the money has some degree of accelerated velocity, especially in purchasing luxury goods and non-essentials. It’s a bit more challenging to “decide” not to pay rent or buy groceries because someone in power “decided” you have too much money.

That is far from an accurate description of today’s inflation problem, which is entirely a result of supply shocks revealed during the pandemic. While wages are now approaching what they should be in the pre-inflation economy, allowing the working class to live with some dignity, wages are not sufficient to explain the extreme and rapid price increases we are witnessing. There is also the evidence of corporate profit gaining significantly, along with stock buybacks, which simply doesn’t happen when wage levels exceed the ability to maintain steady price levels. There is a culprit involved, but it isn’t the worker.