The reason the wages don't rise with the prices is because that 5% are getting hired, and the under-employed are getting more hours, and they jack up the rates as quickly as possible as soon as they sense that wages are rising. However with the increased hours, and fewer under-employed there are people who couldn't afford toilet paper who are finally able to, and that increase the prices. That's not a bad thing. More overtime has a much bigger effect than increased egg prices to most people in low wage jobs. And lower unemployment improves their working conditions as well. It's still essentially a transfer of shares to the broke, even if the wages don't directly increase. Also, a lot of the inflation that was happening this go-around was due to rich people with their PPP loans being able to speculate. Taxing the rich at a more progressive rate as was done in the 50s and 60s would be an alternative way to stem inflation besides using the fed rate. But of course they haven't touched that one in a while.
It's not just trump and sanders that are populists looking for lower fed rates from the central banks. In most countries I think you'll find that the populist parties (i.e. the party with most representation among the poorest) tend toward pushing for lower interest rates and more government spending. You'll also find that those representing the rich tend to push for austerity. There's a reason for that. And it's not that the populists are all working together. You can tell they have much more disparate values than the centrist globalists who want high rates.
Source? The natural rate of unemployment, like the neutral interest rate, floats with economic conditions and cannot be directly estimated.
Anyway, as for a source, the 2nd paragraph of the wikipedia article on NAIRU states it's generally 5-6%. You can pretty readily google it and see that it's been between 4-6%.
https://www.ft.com/content/facf6989-7cd2-3724-a6d4-dfe7c7551... "Among a certain set, the big debates in the 1960s were about whether the government should target an unemployment rate of 3 per cent or 5 per cent." Guess which one they picked. Economics, as it intersects with politics, is not a science at all. Not even close. It's the result of people with agendas funding grants with hopes that someone will show the results they want, and then them cherrypicking those results. If you throw enough money into it, you can find a "scientific" justification for anything. The more academic side of it has some merit... but for the most part it gest brushed aside because it's not telling the people making the policy what they want to hear.
I think both of these are probably roughly true-ish but by brief Googling I couldn't verify either one.
https://commons.wikimedia.org/wiki/File:Federal_funds_rate_v... <-- that's a graph like what I'm talking about. Notice how the blue tends to go up sharply before the grey recession bars. And this tends to happen right as the red line starts to approach 5%. There's an exception recently because trump was in office demanding that they keep the fed rate low, and I guess they decided to listen to him because he was cutting their taxes. But you can tell they didn't love the guy by the way the media covered him. I'm no fan either, but for different reasons.
It's akin to saying that coughing causes lung cancer. Smoking causes coughing and lung cancer. One cause, multiple effects.
I’m not sure if poor or “working class” demographics have enough exposure to fixed rate debt to make inflation a net gain.
If they are homeowners, likely it is: most people knew better to take out ARMs this time around.
Not a homeowner? Tough to conclude that rising rates is a net win here …
The reason they currently support higher rates is twofold: 1) The Fed has kept rates artificially low for an irresponsibly long period of time, leading to inflation and other economic distortions, and 2) The only way to get inflation (which is pernicious) under control is with higher rates.
As for "irresponsibly low" and "(which is pernicious)"... these are your value judgements that you've arrived at based on your perspective. That's fine, but other people have other perspectives. To someone with debt who wants a well-lubricated economy, or to someone who makes money off of exports, it's not irresponsible at all.
If you look at the history of fed rates vs unemployment and recessions, it's a very clear trend that the fed rate has to stay lower longer for a recovery, and it takes less raising of the rates to put us back in a recession. Why would this be? Maybe because it's not the appropriate tool to be using to control inflation. Maybe it's not because the fed is being irresponsible, but it's doing what it has to to keep the economy afloat and that's less and less effective because the country refuses to do what it has to, which is raise taxes on the rich.
This is an unusual claim, to say the least.
Not "the rich" per se, but he is speaking of MMT[1] which maintains that the government of a sovereign printer (sorry, Argentina) does not need taxes at all because they don't "need" the money.
MMT purports that money is created by "printing" it into existence and money is destroyed by taxing it away.
When the federal government pays its debt to the federal reserve, where does that money go?
There is an interesting and compelling theory that you can control inflation with taxes (broadly, MMT[1]) but the cautious and (in my opinion) warranted skepticism that you voice, upthread, about prevailing economic theories should be extended to MMT as well.
We don't really know if money supply creation via "printing" and the corresponding destruction via taxation will work just as MMT suggests it will.
Money is like equity. Raising the rates is essentially a way for them to consolidate more equity. They distributed more equity than they were comfortable with as stimulus during covid, and now they're calling it back. The pattern has been going on since the 70s at least. They made up the BS idea of "natural rate of unemployment" to justify it and gave a nobel prize to the guy who said to keep the unemployment at 5% to keep down "wage inflation"... a.k.a.. people getting paid more. Pay hasn't tracked productivity ever since. Look at the unemployment vs fed rate charts.
Letting your currency inflate is a populist move for a reason. It's not because people are dumb, it's because it while it devalues people's savings, it puts money in the pockets of people without savings, and devalues debt as well. It was used previously in Portugal, Italy and Greece to spur exports whenever the economies were hitting a rough spot. Once they got on the Euro and the powers that be wouldn't inflate, they were screwed, and Germany was able to buy up a bunch of their assets and essentially takes tribute via interest rates on their loans now. It skims off the productivity of their economies. Raising the rates helps them skim more.
Libertartian types tend to have savings. They like to spin a story that justifies what they sense... that raising rates is good for them. It is good for them. People are really good a sniffing out their incentives, even if they don't quite know why. It's also good for the powers that be though.