If the Federal Reserve (Fed) were a TV series, it’d be called “Keeping Up with the Economists” – the decisions made by this often enigmatic body shape the future of the world’s economy. We’ve come a long way from the days when former Fed Chair Alan Greenspan’s briefcase weight could predict the state of the U.S. economy, indicating whether interest rates would dip, promising a rosier economic outlook.
But, despite attempts to make the Fed’s inner workings more transparent since the Great Recession, there’s still a shroud of secrecy around their decisions. One particular drama has captivated the public’s attention: the questionable relationship between the Fed and notorious economist Lawrence “Larry” Summers, the architect behind several financial meltdowns in the past.
Summers, a controversial figure with a history of endorsing disastrous economic decisions, recently penned a Washington Post op-ed accusing Fed Chair Jerome Powell of not having the guts to raise interest rates to control inflation. He argued that the spike in prices was primarily due to the massive fiscal stimulus legislation rolled out by President Joe Biden in response to the COVID-19 pandemic. This stimulus supposedly gave workers unprecedented leverage over employers, leading to wage increases and subsequently inflation.
Despite the heavy criticism, Powell abruptly announced that the Fed would stop using the term “transitory” to describe inflation, a decision eerily in line with Summers’s viewpoint. This move thrust Summers into the limelight, fueling the speculation of an alliance between the two, especially when the Fed began ramping up interest rates consistently with Summers’s advice.
From a progressive standpoint, this apparent collusion between Powell and Summers is concerning. Yes, rate hikes might curb inflation in the long run, but mass unemployment becomes practically inevitable, which doesn’t bode well for the working class.
Contrary to Summers’s dismissive stance on the role of monopolies and oligopolies in driving price growth, critics argue that we need to focus on breaking down these corporate powerhouses. Their unchecked growth and profit-mongering behavior only fuel inflation further, while their workers and the general public bear the brunt of the cost.
Instead of just increasing interest rates and causing mass unemployment, perhaps policymakers should consider employing additional regulatory mechanisms. These might include implementing targeted price controls, enforcing stricter regulations on commodity futures market speculation, or imposing taxes on windfall corporate profits.
Moreover, researchers suggest adopting inflation targets between 4-5 percent instead of the current 2 percent, which could result in better economic growth and strengthen workers’ bargaining power.
Summers’s influence over Fed policy and his track record of dubious economic decisions are concerning, especially considering the global nature of the inflation problem we currently face. With two of the three largest bank failures in U.S. history having happened since March, Powell’s judgment is under intense scrutiny, especially due to his ties with deregulatory advocates like Summers.
The situation calls for a critical look at how the Fed conducts its business, as it seemingly continues to prioritize Wall Street over the needs of everyday Americans. In the end, the essential question remains: Should the fate of millions of working people be at the mercy of a handful of elites behind closed doors?
