Federal Reserve Boss Faces Dilemma With US Economy 'Not Out of the Woods'

Attempts to control inflation at the expense of growth could be driving the US towards stagflation. Dr Linwood Tauheed, associate professor of economics at the University of Missouri Kansas City and former president of the National Economics Association, argues that the government must intervene to revive the country's fortunes.

The US Federal Reserve cannot fix America's economic problems by tinkering with its only tool of interest rates, an economist argues.

Federal Reserve Chairman Jerome Powell is torn between conflicting pressures to control inflation and get the economy growing again following the COVID-19 lockdown and the energy crisis caused by sanctions on Russia.

Economist Dr Linwood Tauheed told Sputnik that it was not exactly a case of the chickens coming home to roost for Powell. 

"I think the chickens don't want to come home this time. I think they want to continue on their path away from home, because home is quite messy."

The academic pointed out that Powell's policy for beating inflation was to send the economy into a nosedive and sacrifice millions of jobs.

"Jerome Powell has indicated in a very upfront manner that he was going to increase interest rates until there was a change in the labor market. Now, what that meant was an increase in unemployment," Tauheed said. 

"He also made it very clear that increase in unemployment would cause a decrease in workers wanting to actually have their pay increased. That is when unemployment rate goes up, people don't worry about how much they get paid. They just worry about having a job," the economist stressed. "He set that out as his goal to discipline labor to the advantage of the business environment."

The economist dismissed the notion prevalent in the mainstream media that the Fed was "all-powerful and can solve every problem."

"The Federal Reserve only has one tool. That is to raise interest rates to bring down inflation," Tauheed said. "But what but the economy as a whole has multiple tools, not just monetary policy, which the Fed has, but also what's called fiscal policy, federal spending."

The collapse of the Silicon Valley Bank and two other mid-sized regional banks earlier this year may not be isolated, the academic warned.

"We're not out of the woods," Tauheed warned. "In fact, there are thousands of banks in the country that have the same problem as the Silicon Valley and other banks. They haven't had runs on the banks and so forth that would expose that. But but those problems have not gone away."

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