What Democrats – And Republicans – Don’t Want to Address in This Economy

Official Washington generally agrees that bringing inflation down, and eventually under control, is job #1. And most certainly, the Federal Reserve is doing its part to help clean up the monetary mess it made through a series of interest rate hikes.

But the other part of fighting inflation is unpalatable to politicians of all stripes and parties. It involves jobs and wages…specifically, the need for more unemployment and less upward wage pressure.

Reaching those ends involves pain – a lot of it, widely spread, through people who may take their job losses out on the political class.

How much pain might we be talking about? As Jason Furman writes in The Wall Street Journal, if the Fed is to get inflation back to its two percent mandated rate, it will require job losses to reach levels that will make official Washington howl:

I assumed that the labor market will cool on its own as job openings fall two-thirds of the way back to what they were before Covid. I also assumed that inflation expectations will fall back toward where they were before Covid and that the recent good news on gasoline and other volatile prices will keep coming for the rest of 2022.

Under these assumptions, which are more optimistic than the authors' midpoint scenario, if the unemployment rate follows the Federal Open Market Committee's median economic projection from June that the unemployment will rise to only 4.1%, then the inflation rate will still be about 4% at the end of 2025. To get the inflation rate to the Fed's target of 2% by then would require an average unemployment rate of about 6.5% in 2023 and 2024.

Granted, these are assumptions about future outcomes. If history teaches us anything, it's that markets frequently wreck economic models. But history also shows that taming galloping inflation requires stern measures that often lead to painful outcomes.

We're not in a Volcker-style inflation-fighting mode. Yet. Hopefully, circumstances – meaning inflation – won't require it.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.

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