On Wednesday, the Federal Reserve announced an interest rate hike of 0.75% to combat the inflation crisis, marking the third consecutive 0.75% increase. According to a recent report from the Bureau of Labor Statistics, prices rose 0.1% in August and 8.3% over the last year.
MoreOn Wednesday, the Federal Reserve announced an interest rate hike of 0.75% to combat the inflation crisis, marking the third consecutive 0.75% increase.
According to a recent report from the Bureau of Labor Statistics, prices rose 0.1% in August and 8.3% over the last year. Core inflation, which excludes volatile gas and energy prices, rose 0.6% in August and 6.3% over the last year.
“Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low,” the Federal Reserve’s Board of Governors said in a statement. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
Federal Reserve Chair Jerome Powell warned that the central bank is committed to bringing inflation down and will continue to raise interest rates.
“The [Federal Open Market Committee] is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done,” Powell said.
Officials also revised their estimates for rates and economic data, projecting the unemployment rate to rise to 4.4% by next year from its current 3.7% – another sign the U.S. economy has entered a recession.
Additionally, they estimate that U.S. GDP growth will slow to 0.2% for 2022, a drastic cut from the previous estimate of 1.7% in June and comes following two consecutive quarters of negative growth, the traditional definition of a recession.
On Tuesday, top Democrat economist Larry Summers, who served in the Clinton and Obama administrations, responded to the news that the inflation crisis worsened in August, warning that the United States still has a “serious inflation problem.”
According to the newly released Consumer Price Index (CPI) report from the Bureau of Labor Statistics, inflation worsened last month as prices rose 0.1% on a monthly basis and 8.3% over the last year. Core inflation, which excludes volatile gas and energy prices, also rose 0.6% in August and 6.3% over the last year.
“Today’s CPI report confirms that the US has a serious inflation problem. Core inflation is higher this month than for the quarter, higher this quarter than last quarter, higher this half of the year than the previous one, and higher last year than the previous one,” Summers wrote on Twitter. “Median inflation used to be a favorite indicator for team transitory. This month it was at its highest ever reading.”
“It is highly implausible that inflation will fall to 2 percent without unemployment exceeding 4.5 percent. Yet this is the most pessimistic view among 19 members of the [Federal Open Market Committee]. Dangerous group think,” Summers added. “With core inflation running above 7 percent this month and likely, given rent behavior, to remain elevated, I fear it is unlikely that a peak Fed funds rate around [4 percent] will be enough to restore 2 percent inflation.”
Summers’ comments come shortly after he similarly warned that President Biden’s student loan forgiveness plan, which could cost taxpayers over $1 trillion, could drive up inflation and increase the overall cost of college
“Every dollar spent on student loan relief is a dollar that could have gone to support those who don’t get the opportunity to go to college,” Summers wrote on Twitter ahead of Biden’s announcement of the details of his plan.
“Student loan debt relief is spending that raises demand and increases inflation. It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions,” Summers continued.
Biden’s plan also ended up including the extension of the student loan moratorium which Summers said was the “worst idea.”
“The worst idea would be a continuation of the current moratorium that benefits among others highly paid surgeons, lawyers and investment bankers,” Summers explained.
Nine months ago, Democrat President Joe Biden said he thought that inflation had reached its peak. Since then, inflation continued to rise to its highest level in 40 years.
“I think it’s the peak of the crisis,” Biden told CNN’s Kaitlan Collins on December 10, 2021. “It’s a real bump in the road. It does affect families when you walk into a grocery store and you’re paying more for whatever you’re purchasing – it matters.”
“It matters to people when you’re paying more for gas, although in some states we’ve got the price down below three bucks a gallon, but the point is it’s not gone down quickly enough. But I think it will,” Biden added.
At the time of Biden’s comments, the annual rate of inflation was 6.8% and the price of gasoline was about $3.30 per gallon. Afterwards, the annual rate of inflation climbed to 9.1% by June 2022, the highest rate in more than 40 years. Meanwhile, the price of gasoline also increased to more than $5 per gallon.
Prices have since continued to increase although a slower rate with the annual rate of inflation being 8.3% in August 2022, according to a newly released report from the Bureau of Labor Statistics.
Record high inflation has resulted in the real wages of Americans decreasing significantly over the last year, according to a separate report from the Bureau of Labor Statistics.
“Real average hourly earnings decreased 2.8 percent, seasonally adjusted, from August 2021 to August 2022,” the report said. “The change in real average hourly earnings combined with a decrease of 0.6 percent in the average workweek resulted in a 3.4-percent decrease in real average weekly earnings over this period.”
During a speech on Thursday, Treasury Secretary Janet Yellen praised the economy under Democrat President Joe Biden, saying the United States experienced “one of the quickest economic recoveries in our modern history.”
Yellen’s comments came shortly after she admitted that she had been “wrong” about inflation when she said repeatedly throughout 2021 that inflation was “transitory” and just a “small risk,” explaining to CNN’s Wolf Blitzer that she was incorrect because of shocks in the economy that she didn’t “fully understand.”
“Our plan has worked. Due to the American Rescue Plan and our vaccination campaign, the United States experienced the fastest pace of job creation in our history,” Yellen said. “Household balance sheets are strong. Businesses continue to invest. Our broad and inclusive recovery has outpaced that of many other large economies. And measured by gross domestic income, our economy continues to expand and is operating above levels that would have been predicted pre-pandemic.”
Notably, the United States officially entered a recession after the economy shrunk 1.6% in the first quarter and 0.6% in the second quarter.
Still, Yellen insisted, “It’s fair to say: by any traditional metric, we have experienced one of the quickest economic recoveries in our modern history.”
However, most metrics indicate that Biden’s American Rescue Plan actually harmed the economic recovery of the United States.
As previously reported, “Biden’s American Rescue Plan was a $1.9 trillion stimulus package that included an extension of $300 weekly enhanced federal unemployment insurance and $1,400 COVID relief payments, and it greatly contributed to the ongoing inflation crisis. When the bill was passed in March 2021, inflation was at 2.6%. The next month, inflation soared to 4.2%. From March 2021 to April 2021, core inflation, which excludes volatile food and energy prices, rose 0.9% – which was the largest monthly increase since April 1982.”
April 2021, the month after Biden’s American Rescue Plan was passed, also marked the first month that the unemployment rate increased since April 2020. The plan, which raised unemployment benefits and increased the time greater benefits would be offered, resulted in the economy adding back nearly 750,000 jobs less than expected in April 2021. Forbes reported at the time, “The United States added 266,000 jobs in April, according to data released by the Labor Department Friday—much worse than the 1 million job gains economists expected and far fewer than the 916,000 jobs added in March, indicating that the long-tepid labor market recovery is slowing down again even as stocks and corporate earnings rip higher.”
“Some economists say employers, particularly in the restaurant and entertainment industry, have been struggling to find workers because Biden’s relief package which included extended pandemic benefits for the unemployed, is deterring some workers from returning to their old job or seeking out a new position,” NBC News wrote in May 2021, adding, “Bank of America estimates that for those who were earning less than $32,000 a year before the pandemic, unemployment pays more than their former job. And, the bank estimates, that could keep 1 million people out of the workforce.”
On Tuesday, Democrat Sen. Joe Manchin (D-WV) discussed his opposition to President Biden’s student loan forgiveness plan, saying it is “excessive.”
“I just thought that it was excessive. I just respectfully disagree on that,” Manchin said, according to The Hill.
“I think there’s other ways. When people were calling me from back in West Virginia, I would give them all the options they had that would reduce their loan by going to work in the federal government,” he added.
Last month, Biden announced his student loan forgiveness plan, which includes the cancelation of $10,000 in student loan debt for borrowers making less than $125,000 per year.
According to an analysis from the University of Pennsylvania’s Wharton School, the total cost of Biden’s plan could exceed $1 trillion, and the majority of the benefits from the plan would be to individuals in higher income quintiles.
Other Democrats have spoken out against the plan. Democrat Rep. Chris Pappas (NH) recently released a statement saying that student loan forgiveness needs to be done through the legislative progress, not by the president.
“We all know the cost of higher education is crushing families … but this announcement by President Biden is no way to make policy and sidesteps Congress and our oversight and fiscal responsibilities,” Pappas said. “Any plan to address student debt should go through the legislative process, and it should be more targeted and paid for so it doesn’t add to the deficit.”
Democrat Rep. Tim Ryan (OH) also warned that the plan “sends the wrong message to the millions of Ohioans without a degree working just as hard to make ends meet.”
