News/Commentary

Feds tell employers to stop giving pay raises, slow economic growth to bring down inflation

November 17, 2022 | | Print Article

A member of the Federal Reserve Board of Governors provoked backlash when he delivered a speech Wednesday in which he urged employers to be wary of raising wages because doing so may exacerbate inflation.

“Wage growth has been a contributing factor to inflation, especially in the service sector, so it is important to get the labor market into better balance to bring future wage growth down to a more sustainable level that will assist in moving overall inflation lower,” board member Christopher Waller said.

This would of course mean slower growth, but Waller is OK with that.

“At any other time, I would be pretty unhappy about slowing growth, but not now. If you believe, as I do, that supply bottlenecks in the economy have mostly abated and that elevated inflation is primarily a function of high demand, then slowing down economic growth is absolutely necessary to bring inflation down to our 2 percent target,” he continued.

But not everybody else agrees with Waller’s perspective. Indeed, his remarks provoked heavy backlash on social media.

Look:

Note what the critics wrote about Ukrainian President Volodymyr Zelenskyy, to whom congressional Democrats and Republicans have been writing endless checks.

The critics are backed by the Center for American Progress, a left-wing public policy group that says “wages and employment do not have to decline to bring down inflation.”

“While economists traditionally worry about a wage-price spiral, there remains no evidence that wages are causing increases in inflation. Workers need pay raises after decades of stagnation, and simply put, wages and employment do not—and should not—have to decline to bring down inflation,” the organization argued in a September article.

The Center for American Progress also takes issue with those who disagree.

“[M]ost of the people who say inflation needs to be addressed because it is hurting poor households only propose to address it by enacting policies that would disproportionately hurt those same poor households,” the organization notes.

“The solution instead should be to continue using fiscal policy to focus support to struggling households, improve the economy’s productive capacity, create more resilient supply chains, and limit the profiteering of those at the top at the expense of everyone else. Corporations must invest more in their long-term sustainability through improved supply chain capabilities and conditions for workers rather than short-term profiteering,” it adds.

Whether or not companies will follow Waller’s controversial recommendation remains to be seen.

The good news is that the economy is improving.

CNBC notes that “[i]nvestors have grown optimistic that a lower-than-expected increase in October’s consumer price index reading is indicative that inflation is cooling.”‘

“Headline CPI increased 0.4% for the month and 7.7% from a year ago, while the core reading excluding food and energy rose 0.3% and 6.3%, respectively. All the readings were lower than market estimates,” according to CNBC.

During his speech Wednesday, Waller also addressed the prospect of another interest rate hike. He noted that due to slowly improving conditions, the next hike may not be as high as the previous one, which was 0.75%.

“Looking toward the [Federal Open Market Committee’s] December meeting, the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike,” he said.

“But I won’t be making a judgment about that until I see more data, including the next PCE inflation report and the next jobs report,” he added.

As to when rates will come down, that may not happen until next November, at the earliest.

Vivek Saxena
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