A Wharton Business School professor and respected economist has been critical of the Federal Reserve’s decision to continue hiking interest rates.
- Professor Jeremy Siegel spoke on CNBC’s Squawk Box on Monday, saying that the Fed’s move is too aggressive and harmful to the working class.
- “Honestly, I think Chairman Powell should offer the American people an apology for such poor monetary policy that he has pursued, and the Fed has pursued, over the past few years,” says Siegel.
- “It seems to me wrong for Powell to say we’re going to crush wage increases. We’re going to crush the worker when that is not the cause of the inflation. The cause of the inflation was excessive monetary accommodation for the last two years.”
Why it’s news
Critics and supporters of the 75-basis-point hike are aware that hiking rates are going to discourage lending and loan borrowing, slowing down the economy. The stock market reacted violently in the days after the announcement.
“Persistently high inflation in 2022 is due in large part to mistakes made by the Fed in the aftermath of the coronavirus pandemic, which caused economic shutdowns around the world and big drops in global markets, and that the Fed’s pivot to fast rate hikes would cause more economic damage,” says CNBC.
The Fed is well aware that its decision is going to have a negative impact on the working class, but it has defended the rate hikes as the lesser of two evils, preferring a short recession to entrenched yearly inflation.
Backing up a bit
During his Jackson Hole speech in August, Fed Chair Jerome Powell affirmed that restoring price stability is a necessity to avoid a “far greater pain.”
“The successful Volcker disinflation of the 1980s followed multiple failed attempts to lower inflation over the previous 15 years. A lengthy period of restrictive monetary policy was ultimately needed to stem high inflation and to start the process of getting inflation down to low and stable levels that were the norm until the spring of last year,” says Powell.
As we previously reported, the Fed hiked interest rates again last week in response to continued inflation. It debated for months whether or not a hike would hurt the economy too much to be worth it, but faced with a 0.1% increase in inflation in August it dedicated itself to increasing rates until yearly inflation has been reduced to 2%.