The Federal Reserve hasn’t changed interest rates since July of last year, after 11 hikes between March 2022 and July 2023 in the hope that higher borrowing costs would slow down consumer and business demand so inflation rates would drop. It kept the benchmark interest rate unchanged in its latest meeting ending July 31, 2024, but Federal Reserve Chair Jerome Powell said that the first rate cut in four years “could be on the table” in September. Nonetheless, the Fed has faced criticism for its refusal to lower rates, though inflation rates have moved steadily lower. By tightening monetary policy, the Fed hurts consumers’ financial lives and even increases unemployment. So why has the Fed been so reluctant to cut interest rates?
The main reason, argues renowned progressive economist Gerald Epstein in the exclusive interview for Truthout that follows, is because the Fed is “more sensitive to the needs of the wealthy few than the rest of us.” As such, the Fed’s claim that it is an independent government agency is a complete myth. Epstein is professor of economics and co-director of the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst, and author of the recently published book Busting the Bankers’ Club: Finance for the Rest of Us (University of California Press, 2024).
C. J. Polychroniou: The Federal Reserve has generated a lot of controversy by deciding at the July Federal Open Market Committee meeting to keep its benchmark interest rate unchanged. Obviously, the central bank is determined to attain its 2 percent inflation objective even though its 23-year high interest rates are having a significantly negative impact on the economy and on consumers’ financial lives. Indeed, the Fed’s high interest rates are counterproductive. They drive up housing prices, including rent; make it more difficult for people to pay down their debts; and even the unemployment rate has started to tick up. What’s going on here? Why is Fed Chairman Jerome Powell refusing to cut the short-term interest rates even as inflation falls?
Gerald Epstein: You are right. For quite a while, the Federal Reserve’s high-interest rate policy has been harmful for most people and even counterproductive in terms of its ostensible objectives: reducing the cost of living for most Americans. These high interest rates are also interfering with other important needs. For example, as Jen Harris wrote in The New York Times, they are discouraging important investments in green energy such as wind power projects, because these projects tend to have large up-front costs and long-term pay-offs. So, the question is: Why has the Fed kept rates up so high and for so long? A key reason, at least until recently, is that these high........