I don’t understand the Federal Reserve. For at least the last year, economists everywhere have been wondering if the Fed is going to raise interest rates. You see, there are many people who are concerned about inflation. And they think that the Fed’s “easy money” policy is going to cause inflation. Now, most of these people are the kind who have been hiding double eagle gold coins under their floorboards ever since Obama was elected president. But the people at the Fed — who seem to be smart and reasonable people — go along with this kind of thing. And it makes no sense.
Let’s assume that inflation in the United States really got out of control and shot up to 5%. There are a couple of things about that. First, a 5% inflation rate for a year or two might actually be good for the economy. But if the people at the Fed didn’t accept this, they could bring that inflation down quite fast by raising interest rates. The only reason there is so much concern about inflation is that it might take a few months to get back down, and that money that the rich would be losing! Can’t have that. What we can, however, have is millions of extra people out of work, because they just don’t matter.
The Federal Reserve’s inflation target is 2%. That means that it should be around 2% — sometimes above and sometimes below. Wanna know what it has been for the first six months of this year: -0.1%, 0.0%, -0.1%, -0.2%, 0.0%, 0.1%, and 0.2%. So the inflation rate for the first half of 2015 is -0.02%. That is far below the Fed’s target. People should be screaming about the inflation rate being too low because it discourages purchases and keeps the dollar too strong against other currencies, thus making our exports less competitive. Some people are concerned about that. But mostly, the concern is that the we are going to turn into Zimbabwe with hyperinflation!
Mark Thoma — a great economist who is not prone to hyperbole — has an idea as to why the Fed might raise interest rates even though it is clearly the wrong thing to do, As Stocks Lurch, Fed Ponders Twist of the Dial. As I’ve said, I’d be very happy if inflation went up — even as high as 5%, although 3% to 4% would be better. But if inflation does go up — even to the supposed proper rate of 2% — the power elite of this country will scream and blame the Federal Reserve. On the other hand, if the Fed raises rates and millions of people lose their jobs, well, that isn’t necessarily the Fed’s fault. There are a lot of reasons that the economy fluctuates.
Do you get that? We may see the Federal Reserve raise interest rates. This will have the effect of putting many people out of work and lowering the wages of many more. And this will all be done because the people on the Federal Reserve are cowards. Of course, the Very Serious people — people like William Saletan — will applaud them and claim that they are being “brave.” That’s because there is nothing more brave to the power elite and their apologists than to make the weak suffer.