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    The uniting theme of Trump’s presidency? Ineptitude | Robert Reich

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    Some Democrats fear they’re playing into Donald Trump’s hands by fighting his mass deportations rather than focusing on his failures on bread-and-butter issues like the cost of living.But it’s not either-or. The theme that unites Trump’s inept handling of deportations, his trampling on human and civil rights, his rejection of the rule of law, his dictatorial centralization of power, and his utterly inept handling of the economy is the ineptness itself.In his first term, not only did his advisers and cabinet officials put guardrails around his crazier tendencies, but they also provided his first administration a degree of stability and focus. Now, it’s mayhem.A sampling from recent weeks:1. The Pete Hegseth disaster. The defense secretary didn’t just mistakenly share the military’s plans with the editor of the Atlantic; we now know he shared them with a second Signal group, including his wife, brother and personal lawyer.He’s a walking disaster. John Ullyot, who resigned last week as Pentagon spokesperson, penned an op-ed in Politico that began: “It’s been a month of total chaos at the Pentagon.” Last Friday, Hegseth fired three of his senior staffers. His chief of staff is leaving. As Ullyot wrote, it’s “very likely” that “even bigger bombshell stories” will come soon. The defense department “is in disarray under Hegseth’s leadership”.It’s not just the defense department. Much of the federal government is in disarray.2. The Harvard debacle. A Trump official is now claiming that a letter full of demands about university policy sent to Harvard on 11 April was “unauthorized”. What does this even mean?As Harvard pointed out, the letter “was signed by three federal officials, placed on official letterhead, was sent from the email inbox of a senior federal official and was sent on April 11 as promised. Recipients of such correspondence from the US government – even when it contains sweeping demands that are astonishing in their overreach – do not question its authenticity or seriousness.”Even though it was “unauthorized”, the Trump regime is standing by the letter, which has now prompted Harvard to sue.3. The tariff travesty. No sooner had Trump imposed “retaliatory” tariffs on almost all of the US’s trading partners – based on a formula that has made no sense to anyone – than the US stock and bond markets began crashing.To stop the selloff, Trump declared a 90-day pause on the retaliatory tariffs but raised his tariffs on China to 145% – causing markets to plummet once again.Presumably to stem the impending economic crisis, he declared an exemption to the China tariffs for smartphones and computer equipment. By doing so, Trump essentially admitted what he had before denied: that importers and consumers bear the cost of tariffs.Now, Trump is saying that even his China tariffs aren’t really real. Following warnings from Walmart, Target and Home Depot that the tariffs would spike prices, Trump termed the tariffs he imposed on China “very high” and promised they “will come down substantially. But it won’t be zero.”Markets soared on the news. But where in the world are we heading?4. The attack on the Fed chair fiasco. When Trump renewed his attacks on Jerome H Powell, the chair of the Federal Reserve – calling him “a major loser” and demanding that the Fed cut interest rates – Trump unnerved already anxious investors who understand the importance of the Fed’s independence and feared that a politicized Fed wouldn’t be able to credibly fight inflation.Then, in another about-face, Trump said on Wednesday he had “no intention” of firing Powell, which also helped lift markets.An economy needs predictability. Investors won’t invest, consumers won’t buy, and producers won’t produce if everything continues to change. But Trump doesn’t think ahead. He responds only to immediate threats and problems.Who’s profiting from all this tumult? Anyone with inside knowledge of what Trump is about to do: most likely, Trump and his family.5. The Kilmar Ábrego García calamity. After the Trump regime admitted an “administrative error” in sending Ábrego García to a brutal Salvadoran torture prison, in violation of a federal court order, Trump then virtually ignored a 9-0 supreme court order to facilitate his return.To the contrary, with cameras rolling in the Oval Office, Trump embraced Nayib Bukele – who governs El Salvador in a permanent state of emergency and has himself imprisoned 83,000 people in brutal dungeons, mostly without due process. Trump then speculated about using Bukele’s prisons for “homegrown” (ie, American-born) criminals or dissidents.Meanwhile, after the Trump regime deported another group of immigrants to the Salvadoran prison under a rarely invoked 18th-century wartime law, the supreme court blocked it from deporting any more people under the measure.6. Ice’s blunderbuss. Further illustrating the chaos of the Trump regime, immigration officials have been detaining US citizens. One American was held by Immigration and Customs Enforcement (Ice) in Arizona for 10 days until his relatives produced papers proving his citizenship, because, according to his girlfriend’s aunt, Ice didn’t believe he was American.Last week, the Trump regime abruptly took action to restore the legal status of thousands of international students who had been told in recent weeks that their right to study in the United States had been rescinded, but officials reserved the right to terminate their legal status at any time. What?Freedom depends on the rule of law. The rule of law depends on predictability. Just like Trump’s wildly inconsistent economic policies, his policies on immigration are threatening everyone.7. Musk’s ‘Doge’ disaster. Musk’s claims of government savings have been shown to be ludicrously exaggerated.skip past newsletter promotionafter newsletter promotionRemember the claim that taxpayers funded $50m in condoms in Gaza? This was supposed to be the first big “gotcha” from the so-called “department of government efficiency” (Doge), but as we know now, it was a lie. The US government buys condoms for about 5 cents apiece, which means $50m would buy 1bn condoms or roughly 467 for every resident of Gaza. Besides, according to a federal 2024 report, the US Agency for International Development (USAID) didn’t provide or fund any condoms in the entire Middle East in the 2021, 2022 or 2023 fiscal years.Then there have been the frantic callbacks of fired federal workers, such as up to 350 employees at the National Nuclear Security Administration who work on sensitive jobs such as reassembling warheads. Four days after Doge fired them, the agency’s acting director rescinded the firings and asked them back. Similar callbacks have occurred throughout the government.Trump and Musk are threatening the safety and security of Americans – for almost no real savings.8. Measles mayhem. As measles breaks out across the country, sickening hundreds and killing at least two children so far, Trump’s secretary for health and human services, Robert F Kennedy Jr, continues to claim that the measles vaccine “causes deaths every year … and all the illnesses that measles itself causes, encephalitis and blindness, et cetera”.In fact, the measles vaccine is safe, and its risks are lower than the risks of complications from measles. Most people who get the measles vaccine have no serious problems from it, the CDC says. There have been no documented deaths from the vaccine in healthy, non-immunocompromised people, according to the Infectious Diseases Society of America.Kennedy also says: “We’re always going to have measles, no matter what happens, as the [measles] vaccine wanes very quickly.” In fact, the measles vaccine is highly protective and lasts a lifetime for most people. Two doses of the vaccine are 97% effective against the virus, according to the CDC and medical experts worldwide. The US saw 3m to 4m cases a year before the vaccine. Today it’s typically fewer than 200.9. Student debt snafu. After a five-year pause on penalizing borrowers for not making student loan payments, the Trump regime is about to require households to resume payments. This could cause credit scores to plunge and slow the economy.Many of the households required to resume paying on their student loans are also struggling with credit card debt at near-record interest rates and high-rate mortgages they thought they would be able to refinance at a lower rate but haven’t. Instead of increasing education department staffing to handle a work surge and clarifying the often shifting rules of its many repayment programs, the Trump regime has done the opposite and cut staff.10. Who’s in charge? In the span of a single week, the IRS had three different leaders. Three days after Gary Shapley was named acting commissioner, it was announced that the deputy treasury secretary, Michael Faulkender, would replace Shapley. That was the same day, not incidentally, that the IRS cut access to the agency for Doge’s top representative.What happened? The treasury secretary, Scott Bessent, told Trump that Musk had evaded him to install Shapley.Meanwhile, the Trump regime is cutting the IRS in half – starting with 6,700 layoffs and gutting the division that audits people with excessive wealth. These are the people meant to keep billionaires accountable. Without them, the federal government will not take in billions of dollars owed.At the same time, the trade adviser Peter Navarro has entered into a public spat with Musk, accusing him of not being a “car manufacturer” but a “car assembler” because Tesla relies on parts from around the world. This prompted Musk to call Navarro a “moron” and “dumber than a sack of bricks” in a post on X, later posting that he wanted to “apologize to bricks”.The state department has been torn apart by the firing of Peter Marocco, the official who was dismantling USAID, by Marco Rubio, the secretary of state. Career officials charged that Marocco, a Maga loyalist, was destroying the agency; Trump’s Maga followers view Marocco’s firing as a sign that Rubio is part of the establishment they want to destroy.Worse yet, Trump has fired more than a half-dozen national security officials after meeting with the far-right agitator Lara Loomer, who was granted access to the Oval Office and gave Trump a list of officials she deemed disloyal.Bottom line: no one is in charge. Trump is holding court but has the attention span of a fruit fly. This is causing chaos across the federal government, as rival sycophants compete for his limited attention.Incompetence is everywhere. The regime can’t keep military secrets. It can’t maintain financial stability. It can’t protect children from measles. It cannot protect America.While we need to continue to resist Trump’s authoritarianism, we also need to highlight his utter inability to govern America.

    Robert Reich, a former US secretary of labor, is a professor of public policy emeritus at the University of California, Berkeley. He is a Guardian US columnist. His newsletter is at robertreich.substack.com More

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      The Guardian view on the IMF’s warning: Donald Trump could cost the world a trillion dollars | Editorial

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      Wake up! When the most sober of global institutions, the International Monetary Fund, abandons its usual technocratic calm to sound the alarm on the political roots of global financial instability, it’s time to pay attention. The IMF is warning of a non-negligible risk of a $1tn hit to global output, as Donald Trump’s erratic “America first” agenda – part oligarchic enrichment scheme, part mobster shakedown – collides with a perfect storm of global financial vulnerabilities.Such a shock would be equivalent to a third of that experienced in the 2008 crisis. But it would be felt in a much more fragile and politically charged environment. This time, the crisis stems not just from markets but from the politics at the heart of the dollar system. The IMF’s latest Global Financial Stability Report sees the danger in Mr Trump’s trade policies, especially his “liberation day” announcements, which have pushed up America’s effective tariff rate to the highest in over 100 years.The IMF put investors on notice that Trumpian volatility was taking place as US debt and equities – especially tech stocks – were overvalued. It cautions that hedge funds have made huge bets that have gone sour, requiring them to sell US treasuries for cash and potentially deepening the chaos in bond markets. Ominously, the IMF draws the comparison, first made by the analyst Nathan Tankus, with the “dash for cash” in March 2020 during Covid, when the Federal Reserve rescued US treasury markets directly. Developing nations, already grappling with the highest real borrowing costs in a decade, may now be forced to take on even more expensive debt – the IMF warns – just to cushion the blow from Mr Trump’s new tariffs, risking a dreaded “sudden stop” in capital flows.At the heart of this chaos stands the US, the very country meant to uphold the global financial architecture. Just over a week ago, Adam Tooze of Columbia University wondered if markets had begun to “sell America” after US long-maturity bond prices fell precipitously. He thought that markets were no longer just responding to economic fundamentals but to politics as a systemic risk factor. In this case: Mr Trump’s tariff threats and his increasing political pressure on Fed’s chair, Jerome Powell. In essence, Prof Tooze gave us the theory; the IMF just confirmed the data.The US president’s continued attacks on the Fed chair over the weekend have only added to a flight from US equities, bonds and the dollar itself. The money is fleeing to safe havens such as gold. Some of the loss has been clawed back, but at what cost? Investors aren’t just jittery about inflation or growth – they’re hedging against political chaos. That might explain the seemingly divergent IMF messaging: blunt systemic warnings in its report versus the soothing market-facing comments from a senior official at the fund’s press conference. This is central bank diplomacy. The institution is signalling that it is worried while trying not to spark a self-fulfilling panic in treasuries and the dollar.The real concern here is not technical dysfunction in treasury markets or the mechanics of the Fed, which are the bedrock of the global financial system. It’s about the politicisation of the monetary-fiscal nexus under a Trumpian regime that is fundamentally hostile to the norms of liberal-democratic governance. When even the dollar is no longer a safe haven, what – or who – can be?Do you have an opinion on the issues raised in this article? If you would like to submit a response of up to 300 words by email to be considered for publication in our letters section, please click here. More

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      Trump says Fed chair would resign if asked and condemns him over interest rates

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      Donald Trump early on Thursday condemned the Federal Reserve chair, Jerome Powell, for not lowering US interest rates, and expressed a wish for him to be gone from his role.The US president lambasted Powell as “always too late and wrong” in a post on his Truth Social platform. Trump noted that the European Central Bank (ECB) was poised on Thursday to lower interest rates again, without mentioning that the body has been responding to the chaos caused by Trump’s initiatives on tariffs.Addressing reporters later in the day, Trump claimed Powell would resign if he asked him to. Powell himself has said that he would not resign if asked to do so by the president.Trump has been pressuring Powell to cut US interest rates for months, even though the central bank is independent of the administration in setting monetary policy and the White House typically does not publicly lobby the Federal Reserve.The ECB had been expected to cut interest rates for the seventh time this year in order to prop up economic growth, and then did so not long before US markets were due to open. Powell enraged Trump on Wednesday night by warning that the president’s sweeping tariffs could raise inflation. That would make the Fed even more hesitant to cut interest rates.Christine Lagarde, the ECB president, in explaining the reasons why it has – unlike the Fed – cut interest rates, said “the economic outlook is clouded by exceptional uncertainty” because of Trump’s tariffs, which constitute a negative demand shock.Lagarde was speaking after cutting the ECB’s main deposit rate by 25 basis points to 2.25%.Europe had been preparing another interest rate cut following the global financial turmoil caused by Trump’s tariffs push, in which he has gone back and forth on whether, when and how deeply to tax imports from other countries, and on which countries, since he returned to the White House for a second term.He retreated sharply earlier this month from his decision to impose tariffs worldwide, pausing most of the charges for 90 days, although most notably not on China, after markets plunged and US government bonds – traditionally seen as one of the world’s safest financial assets – had suffered a dramatic sell-off. Wall Street chiefs and other experts also forecast a heightened likelihood of recession. Economists polled by Reuters on Thursday put US recession odds at 45%.After insisting for days that he would hold firm on his aggressive trade strategy, unveiled in full on 2 April, which he dubbed “liberation day”, Trump announced on 9 April that all countries that had not retaliated against US tariffs would receive a reprieve – and only face a blanket US tariff of 10% – until July.Powell on Wednesday said the US economy was well-positioned but added that Trump’s tariffs were likely to cause “at least a temporary rise in inflation. The inflationary effects could also be more persistent.”He indicated that the prospect of sweeping tariffs on virtually every trade partner could put the Fed in the unenviable position of having to choose between tackling inflation and unemployment.The World Trade Organization, meanwhile, warned that Trump’s tariffs would send international trade into reverse this year, depressing global economic growth.The International Monetary Fund (IMF) managing director, Kristalina Georgieva, said the global outlook was also weakening in the face of the Trump tariff onslaught, adding central banks like the Federal Reserve needed to remain agile and credible.“Resilience is being tested again – by the reboot of the global trading system,” she said.Trump also said as part of his Truth Social post at daybreak on Thursday that “Powell’s termination cannot come fast enough”. He dubbed him, further in the post, “Too Late” and put forward the argument that prices were coming down, from oil to eggs.Trump nominated Powell to become Fed chair during his first term in the White House, in 2018, and Joe Biden renominated him during his term in the White House, in 2022. The US Senate confirms the chair and the US president cannot terminate the head of the Federal Reserve before the end of their four-year fixed stints. Powell is in place until next spring.The US central bank has held interest rates steady at 4.25% to 4.5% since the start of this year.Trump said in his post: “The ECB is expected to cut interest rates for the 7th time, and yet, “Too Late” Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete “mess!” Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS. Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough!”The New York Fed president, John Williams, spoke to Fox Business on TV on Thursday and backed up Powell’s wariness on rates.“I don’t see any need to change the setting of the Fed funds rate any time soon … It’s really about collecting information, understanding better what’s happening in the economy during the rest of this year, understanding kind of how the uncertainty plays out,” Williams said.Meanwhile, Politico, citing unnamed sources, reported after Trump’s post that the treasury secretary, Scott Bessent, had been cautioning White House officials against any attempt to fire Powell, for which there is no tested mechanism, saying it would risk destabilizing financial markets.And there was a fresh alarm bell sounded on the risk of stagflation, in which high inflation combines with high unemployment amid stagnant economic growth.“A sudden crystallization of the threat to Fed independence would both intensify market stress and shift it in more of a stagflationary direction with a sharp increase in tail risk,” Krishna Guha, vice-chair of an arm of the financial advisory firm Evercore ISI, said in a note.Reuters contributed reporting More

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      Jailed Trump adviser predicts mass deportations as second term priority

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      The first 100 days of a second Donald Trump presidency would see the sacking of the Federal Reserve head, Jerome Powell, mass deportations of undocumented immigrants and higher tariffs on Chinese imports, the ex-president’s former trade adviser Peter Navarro has said.Navarro, the maverick former head of the Office of Trade and Manufacturing Policy in Trump’s first administration and a key loyalist, made the forecasts in an interview conducted from prison – where he is serving a four-month sentence for contempt of Congress.Speaking to the website Semafor, Navarro predicted that axing Powell – an establishment figure who was initially appointed as Federal Reserve chair by Trump in 2018 before being reappointed by Joe Biden – would be among the first acts of a newly re-elected President Trump.“Powell raised rates too fast under Trump and choked off growth,” Navarro told Semafor in responses emailed from a prison library in Miami, where he has been putting the finishing touches to a new book, The New Maga Deal, whose title references the former president’s Make America Great Again slogan.“To keep his job, Powell then raised too slowly to contain inflation under Biden,” Navarro said to Semafor. “My guess is that this punctilious non-economist will be gone in the first 100 days one way or another.”He predicted that Powell – who served in the presidential administration of the late George HW Bush – could be replaced by either Kevin Hassett or Tyler Goodspeed, both former chairs of the council of economic advisers.The first order of business in a second Trump presidency, however, would be intensifying a rumbling trade war with China, said Navarro, a noted hawk on Chinese trade policy.“At the top of the trade list is Trump’s Reciprocal Trade Act, first introduced by congressman Sean Duffy in 2019,” he wrote. “If countries refuse to lower their tariffs to ours, the president would have the authority to raise our tariffs to theirs.”Asked about unfinished business likely to be revisited, Navarro identified mass deportation and reinforcing a “buy American” policy.“Trump will quickly close down the border and begin mass deportations,” he said, accusing Biden of “importing a wave of crime and terrorism along with an uneducated mass that drives down the wages of Black, brown and blue-collar Americans”.skip past newsletter promotionafter newsletter promotionDespite – or perhaps partly because of – his incarceration for refusing to cooperate with the congressional investigation into Trump supporters’ 6 January 2021 attack on the US Capitol, Navarro remains an authoritative source on insider thinking in the former president’s camp.Several members of Trump’s inner circle have visited Navarro during his confinement in a minimum security facility, according to Semafor, fuelling speculation that he could play a key role in a future administration.Reinforcing that impression, Navarro said his book identified 100 actions that Trump would take in the first 100 days of a second presidency. He said he planned to attend the Republican national convention in mid-July – where Trump is expected to be anointed as the GOP presidential candidate – if he is released from prison in time.While he was close to the former president throughout his first administration, Navarro’s views on trade are considered fringe by many mainstream economists. He is a vocal critic of Germany, as well as China, and has accused both countries of currency manipulation. More

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      The US central bank is poised to cause untold hardship to millions of Americans | Robert Reich

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      The US central bank is poised to cause untold hardship to millions of AmericansRobert ReichThe Federal Reserve chairman has admitted that at least 2 million people could lose their jobs if interest rates keep risingAs chairman of the Federal Reserve board, Jerome Powell is making his semi-annual policy report to Congress this week. I have an urgent question for Powell that I hope members of Congress will also ask: how can he justify further rate hikes in light of America’s staggering inequality?The US should break up monopolies – not punish working Americans for rising prices | Robert ReichRead morePowell and his colleagues on the Fed’s open market committee are considering pushing interest rates much higher in their quest to get inflation down to their target of 2%. They believe higher interest rates will reduce consumer spending and slow the economy.With all due respect, this is unnecessary – and unjust.Over the past year, the Fed raised interest rates at the fastest pace since the 1980s, from near zero to more than 4.5%. But consumer spending isn’t slowing. It fell slightly in November and December but jumped 1.8% in January, even faster than inflation.As a result, Powell is now saying he may need to lift rates above 5%. A recent paper by a group of academic and Wall Street economists suggests that he will need to raise interest rates as high as 6.5% to meet his 2% target.This would worsen America’s already staggering inequalities.You see, the Americans who are doing most of the spending are not the ones who will be hit hardest by the rate increases. The biggest spenders are in the top fifth of the income ladder. The biggest losers will be in the bottom fifth.Widening inequality has given the richest fifth a lot of room to keep spending. Even before the pandemic, they were doing far better than most other Americans.The top fifth’s savings are still much higher than they were before the pandemic, so they can continue their spending spree almost regardless of how high the Fed yanks up rates.That spending is a big reason Powell and his colleagues at the Fed are having so much difficulty slowing the economy by raising interest rates (in addition to the market power of many big corporations to continue raising prices and profit margins).Those higher rates are flowing back into the top fifth’s savings, on which they’re collecting interest. But yank up rates much more and we’ll impose big sacrifices on lower-income Americans.Powell himself has predicted that at least 2 million people will lose their jobs if he raises interest rates to 4.6% by the end of the year.The study I mentioned a moment ago concludes that “there is no post-1950 precedent for a sizable central-bank-induced disinflation that does not entail substantial economic sacrifice or recession”.Well, there’s also no post-1950 precedent for the degree of income inequality America is now experiencing.Relying on further interest-rate hikes to fight inflation will only worsen the consequence of America’s near-record inequality. The people who will endure the biggest sacrifices as the economy slows will be the first to lose their jobs: mostly, those in the bottom fifth.There’s no reason for further hikes, anyway. Inflation is already slowing.I understand Powell’s concern. What looked like a steady, albeit gradual, slowdown is now looking even more gradual. But so what? It’s the direction that counts.He should abandon the 2% target rate of inflation. There’s nothing sacrosanct about 2%. Why not four? Getting inflation down to 2% is going to cause too much pain for the most vulnerable.And Powell should suggest to Congress that it use other tools to fight inflation, such as barring corporations with more than 30% market share from raising their prices higher than the overall inflation rate – as recently proposed by New York’s attorney general.Mr Powell, if you’re reading, may I be perfectly frank? You weren’t elected to your current post. Nor were your colleagues. That’s understandable. The Fed needs to be insulated from politics. But you at least owe it to America to do your job fairly.It would be terribly unjust to draft into the inflation fight those who are least able.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California, Berkeley, and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      Fed announces smallest interest hike in a year as inflation ‘eases somewhat’

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      Fed announces smallest interest hike in a year as inflation ‘eases somewhat’Quarter-point increase to a range of 4.5% to 4.75% signals a slowdown in Fed’s fight against soaring inflation The US Federal Reserve signaled a slowdown in its fight against soaring inflation on Wednesday, announcing its smallest hike in interest rates in almost a year.After its latest meeting, the Fed announced a quarter-point increase in its benchmark interest rate to a range of 4.5% to 4.75%, the smallest increase since March last year. “Inflation has eased somewhat but remains elevated,” the Fed said in a statement adding that “ongoing increases” will be appropriate as it seeks to bring prices down.“We covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do,” said Fed chair Jerome Powell.Inflation in the US has been running at levels unseen since the 1980s, triggering a cost of living crisis as the price of everything from eggs to gas and rent has shot up.In order to tamp down inflation the Fed has aggressively hiked rates as it seeks to cool the economy and bring prices back under control.A year ago the Fed rate – which affects the interest rates on everything from business and personal loans to mortgages and credit card rates – was close to zero. After the most rapid series of rises since the 1980s, it is now at a level last seen in 2007.There are signs that prices are coming down. In December, the annual rate of inflation fell to6.5% from 7.1% in the previous month, the sixth straight month of yearly declines and well below the peak of 9.1% it hit in June, its highest rate since 1982.Consumer spending – the largest driver of the economy – fell 0.2% from November to December. The housing market has slowed and many of the major tech companies have announced large job cuts as they have moved to rein in spending.But inflation remains well above the Fed’s annual target rate of 2% and the central bank has said it will keep rates high until price stability is achieved. The Fed also continues to worry about the jobs market. The unemployment rate was 3.5% in December, a 50-year low and on Wednesday the labor department announced there were 11m job openings in the US in December – almost two available jobs for every person looking for one and an increase from November.The tight labor market has driven up wages and Powell, has made clear that the central bank believes rising wages threaten to spur on inflation – a so-called wage-price spiral. “You don’t see that yet, but the whole point is, once you see it, you have a serious problem. That means that effectively in people’s decision-making, inflation has become a real salient issue,” said Powell. “That is what we can’t allow to happen.”TopicsFederal ReserveUS economyJerome PowellEconomicsUS politicsInflationnewsReuse this content More

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      We need serious public policy, not more printed money – the US economy is in tatters

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      AnalysisWe need serious public policy, not more printed money – the US economy is in tattersDoug HenwoodDecades of bailouts have convinced some that the Fed will always come to the rescue – but this only papers over the fundamental flaws of the US economy With the Federal Reserve leading the world’s central banks in a tightening cycle of interest rate rises, the likes of which we haven’t seen since 2006, commentators across the political spectrum are noting the fondness of the Fed chair, Jerome “Jay” Powell, for his legendary predecessor, Paul Volcker. On the left, the comparison is fearful; on the center and on the right, it’s one of admiration. But circumstances don’t really support the comparison.Fed announces sixth consecutive hike in US interest rates to fight inflationRead moreOn taking office in October 1979, Volcker declared “the standard of living of the average American has to decline” as a consequence of the war against the chronic inflation of the 1970s. He quickly set to work making that happen by driving interest rates up towards 20% and creating the deepest US recession since the 1930s.That squeeze did put an end to high inflation but at a tremendous social cost. Six million people lost their jobs over the next three years, taking the unemployment rate from 6% to almost 11% in late 1982. The cost wasn’t merely short-term. About half of those job losses were categorized as permanent, as opposed to being temporary layoffs, many of them in the manufacturing heartland. The term “rust belt” entered common usage.Volcker was appointed by Jimmy Carter, who seemed to have no idea of what he was getting himself into. His friend and adviser, the Georgia banker Bert Lance, prophetically warned him that he was dooming his prospects in the 1980s election. But Carter listened to the consensus of Wall Street and the political class – Volcker was the man to tame inflation, which was running around 13% at the end of 1979. The US had seen inflation rates that high before, but never outside of major wars or their immediate aftermath. Inflation, which was under 2% in 1965, had been rising relentlessly for 15 years, barely pausing even in the nasty recession of the mid-1970s. Contrary to a belief popular on the left, that inflation was not kind to workers. Wages badly lagged prices, and real average hourly earnings fell 14% between 1973 and 1980.There are some similarities between the present and 40 years ago. Then, as now, food and energy prices were important factors in sparking inflation, but in both cases, even if you strip out those two volatile components, a severe inflation remains. And in both cases, polls have shown inflation to be deeply unpopular.But there are also major differences, notably in the strength of labor. At the end of the 1970s, almost a quarter of all workers were unionized; now only about a tenth are. Then, an average of 22,000 workdays were lost to strikes every year; last year it was just 1,500 – a decline of 93%. The early 1980s recession hammered the bargaining power of the working class. Unions were busted, and we went from a time when Take This Job and Shove It could be a hit song (as it was in 1977) to one where workers were grateful to have any job at all, no matter how tenuous and low-paying. As the recession ended in late 1982, the stock market took off and the employer class began a 40-year celebration of its triumph.That’s not the world Powell finds himself in. Inflation has been a problem for close to 15 months rather than 15 years, and although there are some tentative signs of life in the labor movement – notably at one Amazon site and a few hundred Starbucks outlets (out of 9,000) – the share of the labor force represented by unions fell last year, and strike activity so far in 2022 is about a third lower than in 2021. Unlike the inflation of the 1970s, this is not the wage-push kind (to use the jargon). It’s been driven first by supply chain blockages, thanks to Covid, and extended by embargoes against Russian energy exports, and most workers are just looking on helplessly as their paychecks fail to keep up with price increases.There’s another difference as well: we’re coming off a decade of extremely indulgent monetary policy. Coming out of the Great Recession, the Fed kept short-term interest rates near zero between 2011 and 2021, with the brief exception when they pushed them up to just over 2% in 2017 and 2018 (still quite low by historical standards). On top of that, the central bank pumped over $3tn (£2.7tn) into the financial markets between 2008 and 2015, and almost $5tn between early 2020 and early 2022. The earlier pumping was meant to prevent a financial implosion after the sub-prime crisis, and the latter to counter the threats of the early pandemic months. But the result of both has been to stimulate crazy inflation in asset prices – stocks, crypto, unicorns, housing – a remarkable waste of capital and one that can be very risky to deflate. Decades of bailouts have convinced financial market players that the Fed will always come in to rescue them and reversing that mentality could require a Volckerish austerity for Wall Street – one that’s politically hard to imagine.The Fed’s interest rate hikes are going to hit the most vulnerable | Dean BakerRead moreWhat Powell is up to now bears almost no resemblance to Volcker’s clampdown. The federal funds rate, the interest rate at which banks lend each other money overnight – that is the Fed’s most direct policy target – changed from just above 0% to just under 4% after raising the target rate another 0.75 points this week. That’s almost 15 points below the Volcker peak. In real terms – deducting the rate of inflation – Volcker’s peak was almost 10%, a lot higher. Right now, the real fed funds rate is around -4% (yes, that’s a negative sign). Powell may admire Volcker, but next to him, he’s a piker.The debate over monetary policy overlooks a more important issue. That decade of cheap money papered over a lot of fundamental problems with the US economy: low levels of public and private investment, massive polarization between rich and poor and unstable employment for much of the labor force. These should be addressed with serious public policy, not by printing money. It would be nice if we talked about that, but given the degraded state of American political discourse, I’m not hopeful.
      Doug Henwood is an economic journalist based in Brooklyn. His radio show, Behind the News, airs on KPFA radio in Berkeley, and is available on all the standard podcast outlets
      TopicsFederal ReserveUS economyJerome PowellUS politicsInflationanalysisReuse this content More