Editorial Roundup: The Economy: Rethink Fed Interest Rate Policy
Posted on Friday, September 29, 2023 at 8:50 pm
For all the advice President Joe Biden makes about building the economy from the middle class, he should apply the same thinking to the Federal Reserve’s interest rate hike policy.
Interest rate hikes hit the middle class more than the rich, and the idea of using them to control inflation may be old-fashioned, if not outdated.
The Center for American Progress notes that low-income families pay about 9.5% of their income on credit cards, while middle-class pay the equivalent of 5.2% of income and high-income families pay the equivalent of 2.3% of their income.
Credit card debt to reach $1.03 trillion by 2023
Last week the Fed decided it would not raise interest rates now and leave them at 22-year highs. But others predict that an unelected group of bankers will raise it one more time before the end of the year, in Grinch-like fashion, just in time for the holiday shopping season.
Interest rate hikes hit credit cards and car loans hard, followed by home mortgage rates – the highest rates in decades. The increased cost falls on those who need credit cards once or frequently to purchase basic necessities such as food, clothing and health care.
One could argue that the central bank’s action would reduce inflation and actually benefit the middle class. But raising interest rates places an unfair tax on the middle class to subsidize low prices for everyone, even those who buy yachts and other luxury goods.
While Biden comes from a long history in the Senate where Federal Reserve policy has never been questioned, we’re in different times now. Financial markets have become complex, and there seems to be a financial instrument against everything one can imagine, perhaps even things like the Yankees not making the playoffs.
And there are many forces pushing back against the idea that higher interest rates will reduce inflation.
Indeed, the yield on the 10-year Treasury note hit a 16-year high of 4.4 last week, up from 3.56 a year ago. Experts say mortgage rates and car loans closely track Treasury benchmark rates, and higher yields on the benchmark accomplish the same thing that increases in interest rates accomplish — reducing demand for cars and homes.
Today’s booming economy doesn’t need Federal Reserve intervention. As it stands, 12 of the central bank’s 19 members expect to raise interest rates one more time this year.
But President Biden should remember that it is a tax on the middle class.
– Mankato Free Press, September 24
„Oddany rozwiązywacz problemów. Przyjazny hipsterom praktykant bekonu. Miłośnik kawy. Nieuleczalny introwertyk. Student.