Robert Reich: It’s Time To Declare Victory In The Inflation Fight – OpEd


Inflation data released Wednesday offered some of the most hopeful news since the Federal Reserve began trying to tame rapid price increases 16 months ago. It’s reason for it to stop raising rates. 

The consumer price index was at 3% for the month of June, compared to the year before. This is a significant improvement from the May figurewhich was 4%. And a major improvement from last year’s peak of 9.1% in June.. The last time inflation neared 3% was in March 2021.

So will the Fed please now declare victory? Yes, I know, the Fed has an inflation target of 2%, and some Fed officials have recently signaled they’re likely to raise interest rates again at their July 25-26 meeting.

But it’s time to stop, because higher rate will slow the economy — and a slower economy will hurt lower-wage workers. 

The strong jobs economy brought on by the double whammy of lower rates and the much maligned $1.9 trillion recovery bill that Congress passed in the late winter of 2021 — has been a boon to lower-wage workers. 

According to a study by economists David Autor, Arindrajit Dube, and Annie McGrew, that strong economy enabled many workers—predominantly young, with no more than high school educations, working overwhelmingly in low-wage service-sector jobs—to quit their old jobs in 2021 and 2022 for better-paying ones. 

It was chiefly they who were doing the quitting and moving to better jobs over the past several years. Autor, Dube, and McGrew document that the workers who quit their jobs didn’t just quit; they overwhelmingly found new employment that paid better.

This, in turn, has reduced inequality in America. It has shrunk the pay gap between college-educated and non-college workers (and that between the 90th income percentile and the 10th income percentile) by a full 25 percent. 

So large were these gains among low-wage workers that they were the only group of workers over the past two years who have seen wage increases that outpaced the rise in inflation. 

In other words, a tight labor market reduces inequality. The only reason the Fed has had to slow the economy and loosen the labor market is to reduce inflation. But Wednesday’s data shows that inflation is way down. So the Fed should declare victory. Now.

Robert Reich

Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, and writes at Reich served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written fifteen books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "The Common Good," which is available in bookstores now. He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." He's co-creator of the Netflix original documentary "Saving Capitalism," which is streaming now.

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