Bilgin Demir

The Federal Reserve is responsible for maintaining stable prices and maximum employment in the economy, and it often uses monetary policy tools such as raising interest rates to control inflation. While increasing interest rates can help slow down inflation, it can also reduce economic activity and potentially cause job losses.

In terms of ethics, the decision to raise interest rates and potentially allow high unemployment to control inflation is complex and involves balancing multiple economic factors. Some argue that it is unethical to allow people to lose their jobs to lower inflation. In contrast, others say that controlling inflation is necessary for long-term economic stability and that short-term pain may be required.

It’s worth noting that the Federal Reserve typically raises interest rates gradually over time to minimize the negative impact on employment and the broader economy. Additionally, other policy tools can be used to combat inflation, such as fiscal policy and regulation.

In making their next rate decision, Mr. Powell suggested officials would pay close attention to Friday’s government report on February hiring and next week’s report on inflation. Since they last met on February 1, several economic reports have revealed hiring, spending, and inflation were stronger in January than expected. Data revisions showed inflation and labor demand didn’t soften as much as initially reported late last year. (1)

Sen. Elizabeth Warren (D., Mass) challenged him over fears the Fed’s efforts to rein in inflation would lead to significantly higher job losses than central bank officials have said is likely. During a testy exchange, Ms. Warren repeatedly pressed Mr. Powell to address an estimated 2 million workers who might lose their jobs as the Fed tries to slow the economy. After several questions, Mr. Powell responded, “Will working people be better off if we just walk away from our jobs and inflation remains 5%-6%?” (2)

This response is a lame excuse for Federal Reserve’s dysfunctional policy as they kept interest rates at/near 0% and responded very late to price hikes and high consumer demands during COVID. They allow easy monetary policy to support the national economy hot while not calculating the cost of the policy that would eventually cause inflation. We, the people, knew inflation was on its way, but somehow Federal Reserve officials did not. So, people should not pay for their dysfunctionality by losing their jobs.  

(1) & (2) – WSJ, March 7, 2023, Nick Timiaros