Paul: Raising Rates is the Wrong Response to the Inflation Crisis

The last year of inflation has disproportionately hurt low-income and nonwhite families — those with the least flexibility in their monthly budgets to absorb higher prices.

Now those same groups could be hurt by economic policymakers’ plan to tackle inflation through interest rate hikes, and in potentially longer-lasting ways.

“If the Fed slips the economy into recession, what kinds of tools and political capital will be available? That’s a real concern that we aren’t talking about and aren’t being honest with ourselves,” said Mark Paul, an economist at Rutgers who has argued raising rates is the wrong response to the inflation crisis. “In the pandemic, policymakers reacted in a far better way than they have in our lifetime, where, rather than the economy taking 10 years to get to pre-Covid levels, it essentially took 1.5 years. The narrative now is that the government overshot, but the question is what were the other options and what would those have led to?”

Paul, the Rutgers economist, helped advise Bowman on his bill and told Vox that he believes the Federal Reserve is not taking seriously its dual congressional mandate for both price stability and maximum employment. “Right now the Fed seems to be focused on price stability at all costs,” Paul said. “Full employment be damned.”

Vox.com, October 26, 2022