Federal Reserve chair and millionaire banker Jerome Powell speaking at a July 27 press conference. Photo Credit: Federalreserve (Flickr)
The Biden administration and their defenders are heralding the July jobs report as a sign that the economy is strong and that fears of a recession are overblown. The report, released today, showed that 528,000 jobs were added last month. But these premature celebrations cannot cover up the immense economic hardships that workers are being subjected to. And this month’s jobs report may in fact lead the Federal Reserve to intensify its campaign to intentionally crash the economy to solve the inflation crisis on the backs of workers and eviscerate employees’ bargaining power.
When workers go to the grocery store or the gas station, no one feels that the economy is in recovery like the Biden administration claims. Instead, it is clear that the basic goods people need have become crushingly expensive. The price of a gallon of gas is up 29% from one year ago. As of July, rent is 12.3% more expensive on average across the country. The cost of a pound of chicken is up 26% from last year, and the price of a dozen eggs is up 40%.
Today’s jobs report found that average hourly wages have increased by 5.2% compared to one year ago. But this does not come close to keeping pace with the blistering inflation that’s been ravaging the economy. The latest inflation report registered a 9.1% increase in prices nationwide compared to the year before. What kind of “recovery” is it when workers are getting poorer?
It is unclear whether this month’s relatively high number of jobs created is an anomaly or part of a trend. But to the extent that it does represent a glimmer of positive news for workers, it ironically will only deepen the Federal Reserve’s resolve to crash the economy.
The Federal Reserve is the central bank of the United States, responsible for key areas of economic policy that have far-reaching consequences. It is a completely undemocratic institution controlled by finance capitalists and exists to manage the economy in the interests of the big banks. The current head of the Federal Reserve, Jerome Powell, is a wealthy banker with a long career in finance, including as a partner at the $376 billion firm The Carlyle Group. He was first nominated by Trump and then renominated by Biden at the beginning of this year.
One of the most important tools the Fed has at its disposal is setting interest rates – lowering rates tends to make economic growth speed up and raising rates makes the economy slow down, or even enter a recession if the rate hikes are extreme enough. In an economic crash, inflation generally comes down as workers are unable to spend to the same extent and overall demand for goods and services becomes greatly diminished. This means major suffering for working people, but to the Fed that’s a small price to pay. They are of course unwilling to consider other measures to get inflation under control, like imposing a price freeze on major corporations that are enjoying record profits.
The Federal Reserve and the capitalist class as a whole are especially eager to create a “looser” labor market – meaning that they want to make it much harder for workers to find jobs. If it is harder to find work, then people will feel compelled to accept lower wages. Lower wages means higher profits for the capitalists, and a scarcity of jobs also has the effect of tamping down workers’ confidence to struggle for a union or go on strike. A memo by a top economist at Bank of America recently leaked to The Intercept read in part, “By the end of next year, we hope the ratio of job openings to unemployed is down to the more normal highs of the last business cycle.” The capitalists are hoping for higher unemployment.
To the Federal Reserve, good news is bad news. If there are signs that it remains relatively easy for workers to find a job, or that workers’ wages have not diminished at the extreme rate that they hoped for, then the Fed will likely come to the conclusion that it needs to be more aggressive for its strategy to succeed. This will fuel even greater interest rate hikes and potentially an even deeper recession than the one that already exists. Such is the absurd logic of the capitalist system.