Lindsay Owens on the Fed, inflation

Lindsay Owens on the Fed, inflation: “We can now dispense with the myth that the only way to bring down prices is by sticking it to workers”

This year we saw rapidly falling price growth and unemployment below 4% for 22 months – the longest stretch in 54 years. Groundwork Collaborative Executive Director Lindsay Owens recapped 2023 with the following statement:

“Looking back on this year, we can now dispense with the myth that the only way to bring down prices is by sticking it to workers with layoffs and pay freezes.

“Turns out, we never had to choose between jobs and prices in 2023. Inflation has fallen, we have a record-breaking labor market, and wages are rising. Chair Powell and the Fed must leave behind these disproven theories in 2024.”

To set up an interview with Lindsay Owens, email press@groundworkcollaborative.org.

RECENT PIECES ON THE FED AND INFLATION THAT GOT IT RIGHT:

• New York Times: Beware Economists Who Won’t Admit They Were Wrong. But many economists who were wrongly pessimistic about inflation — most prominently Larry Summers, although he isn’t alone — remain unwilling to accept the obvious…The original pessimist argument was that the Fed needed to create a lot of unemployment to reduce inflation. As best I can tell, the argument now is that by acting tough the Fed convinced people that inflation would come down, and that this was a self-fulfilling prophecy. There is, as far as I can see, no evidence at all for this story. [12/18/23]
• Bloomberg: Have the Fed’s Rate Increases Meant Nothing? It seems that the Fed has played, at most, a secondary role in slowing inflation, and the rising odds of a soft landing looks to be more of a coincidence than the result of expert macroeconomic policy. To be sure, monetary policy acts with a lag, and we may well see the Fed’s actions lead to demand destruction throughout the economy. But until then, it’s fair to ask whether we — policymakers included — need to rethink the transmission mechanism of raising or lowering interest rates. [12/7/23]
• Wall Street Journal: Why the Fed Shouldn’t Get Credit for the Fall in Inflation. On the face of it, inflation plummeted after the Fed, flat-footed at first, finally caught up by imposing a rapid series of rate increases. Dig into what actually happened, and there is no obvious link between the Fed action and the slowdown in inflation. Instead, inflation fell mostly because of things the Fed has no control over, as normality returned after the pandemic. The best we can say about the Fed is that it stopped things from getting even worse. [11/8/23]