Facebook Instagram Twitter YouTube

The Fed Will Raise Interest Rates “Soon.” The Capitalists — and Democrats — Are Very Nervous

The Federal Reserve announced today that it would “soon” be raising interest rates — probably in March — in an effort to stem inflation, which has hit its highest levels in the United States since 1982. The Democrats are desperate to keep inflation from becoming an issue in the midterm elections.

Scott Cooper

January 26, 2022
Facebook Twitter Share
Stefani Reynolds for The New York Times

A highly anticipated announcement about interest rates by the U.S Federal Reserve — the country’s central bank — came this afternoon. The bank left rates unchanged at near-zero, as they’ve been for nearly two years through the course of the pandemic, but promised an increase would come “soon.” This means borrowing costs will likely rise after the Fed’s next meeting in March. 

In a statement, the central bank’s Federal Open Market Committee (FOMC) said it “expects it will soon be appropriate to raise the target range for the federal funds rate.”

It’s all about inflation and the job market.

As we explained earlier this month, inflation in the United States has reached levels not seen since the early 1980s. According to the US Inflation Calculator, the annual rate for the 12 months that ended December 2021 was 7.0 percent. Consumers are feeling the pinch, with prices of food and fuel in particular rising steeply.

Since the Covid-19 outbreak began, the Fed has been engaged in a concerted effort to bolster the economy. It spent billions in a bond-buying program as a way to inject money into the economy, but the FOMC has now left that on track to wind down in March. As the New York Times reports, “Central bankers have signaled that they could begin to shrink their balance sheet of bond holdings soon after they begin to raise interest rates, a move that would further remove support from markets and the economy.” The committee’s announcement today included a “statement of principles” for that process aimed at ensuring that it reduces its holding “in a predictable manner” and “primarily” through adjustments in how much it reinvests as these previous asset purchases expire — all part of winding down its earlier stimulus actions.

The world’s capitalist class loves that word: “predictable.” They prefer everything, from world events to economic minutiae, to be predictable. When so much of profit-making and exploitation plays out in glorified casinos — that is, the stock, bond, and futures markets — surprises and uncertainty are not appreciated. 

The markets, anticipating all of this, opened higher today after experiencing a sharp drop late last week and especially earlier this week — in what has been dubbed “Black Monday.” Fed announcements have tremendous and immediate effects on what the capitalists do. For instance, one key index that tracks the financial services industry was at 1.2 percent higher than yesterday just before the FOMC statement was released, and shares in these companies were up 1.8 percent within moments of the statement coming out. The S&P 500 was up about 1.6 percent just before the announcement, and over 2 percent minutes after. And the Nasdaq composite took an upward leap.

Then it all reversed. Soon after Fed chairman Jerome Powell began a press conference after the FOMC announcement, the Dow Jones fell 70 points — having been up as many as 500 points earlier in the day. The S&P 500 and Nasdaq lost some of their gains, too. That is where things stood as we went to press.

In the press conference, Powell discussed the current labor market, noting that there are many more job openings than workers willing to take those jobs, and said that the United States is at the “highest level of employment that is consistent with price stability.” He insisted that the Fed had “quite a bit of room” to raise interest rates without hurting the “very strong labor market.” 

The Fed chairman reiterated again and again that the Fed was aiming at making sure inflation doesn’t become “entrenched.” But the market response makes clear that his message of “sooner … and perhaps faster,” rather than immediate action, was not the immediate Fed action investors really seemed to be hoping for to stem any volatility between now and the next meeting.

“We feel like the communications we have with market participants and with the general public are working,” Powell said. But it seems not to be predictable enough for a capitalist class worried about the economy per se as well as the uncertainty of a looming war in Ukraine.

Higher interest rates have a real effect on workers. They make it more expensive to spend money, and reduce disposable income. For the most marginalized people in society, they can render basic needs less accessible. And historically, higher interest rates have also kept U.S. companies from expanding employment.

As inflation continues to erode the value of household paychecks, the economy poses “a political liability for President Biden and the Democrats,” as the Times put it. The administration is counting on the Fed to keep inflation under control without its policies having any negative effects on the job market.

No matter what happens between now and March — which could include interest rate increases even sooner than expected — the ruling-class “solutions” will center on maintaining capitalist stability and exploitation at the expense of the working class. Those are the words “between the lines” of every announcement from the Fed and every statement by Powell before the cameras.

Facebook Twitter Share

Scott Cooper

Scott is a writer, editor, and longtime socialist activist who lives in the Boston area.

United States

20 Years Since the U.S. Invasion of Iraq: A Reflection from a Socialist in the Heart of Imperialism

A Left Voice member and anti-war activist reflects on the U.S. invasion and occupation of Iraq and how he learned to hate U.S. imperialism.

Sam Carliner

March 20, 2023

Train Derailment in Metro Detroit Illustrates That Capitalist Control of the Railroads Is Fundamentally Unsafe

With the capitalists in control of the railroads, they will destroy the environment and poison and kill workers. The catastrophe in East Palestine will not be the last if we don’t nationalize our railroads and put the safety of people and the environment over profit.

Emma Boyhtari

February 28, 2023
East Palestine, Ohio in the distance at night, smoke and fire springing up due to the train derailment.

The Ohio Train Disaster Is on Biden’s Hands

Just months after President Biden and Congress blocked railway workers from striking over dangerous working conditions, the exact type of disaster that workers predicted has come to pass. The fate of East Palestine must be a wake-up call for the labor and climate movements to fight for the nationalization of the railroads under workers’ control.

B.C. Daurelle

February 15, 2023
US President Joe Biden speaks during a State of the Union address with US Vice President Kamala Harris, left, and US House Speaker Kevin McCarthy, a Republican from California, right, at the US Capitol in Washington, DC, US, on Tuesday, Feb. 7, 2023. Biden is speaking against the backdrop of renewed tensions with China and a brewing showdown with House Republicans over raising the federal debt ceiling.

Biden’s Populist Speech Can’t Cover Up Capitalist Crisis

Biden tried to paint a picture of a United States that has come back stronger after the pandemic. But despite his populist rhetoric and laundry list of policies, none of these measures can address the real needs of the vast majority of the working class and poor who have been exploited and oppressed for much longer than the last two years.

Tatiana Cozzarelli

February 8, 2023

MOST RECENT

Protesters gather during a demonstration on Place de la Concorde in Paris on March 17, 2023, the day after the French government pushed a pensions reform using the article 49.3 of the constitution. - French President's government on March 17, 2023 faced no-confidence motions in parliament and intensified protests after imposing a contentious pension reform without a vote in the lower house. Across France, fresh protests erupted in the latest show of popular opposition to the bill since mid-January.

Battle of the Pensions: Toward a Pre-Revolutionary Moment in France

President Macron's use of article 49.3 to push through an unpopular pension reform bill has opened up an enormous political crisis that has changed the character of the mobilizations against the French government. We are entering a "pre-revolutionary moment" that can change the balance of power between the classes in France.

Juan Chingo

March 21, 2023

It is Possible to Win: The Pension Reform Crisis in France

A French socialist reflects on the way forward after Macron invites Article 49.3 to pass pension reform.

Paul Morao

March 20, 2023

“We are your economy”: Trans Youth Walkout and Speak Out

The following is a speech by a young trans person as part of an action called for by NYC Youth for Trans Rights.

Tatiana Cozzarelli

March 20, 2023
Three tables full of food, with signs hung above them. One says "The People's Pantry: FREE FOOD." Banners hung from the tables say "Free CUNY" and "Cop Free School Zone"

CUNY Administration Cracks Down on Student and Worker-Run Food Pantry

Students and workers opened "The People's Pantry" seven weeks ago as part of a broader anti-austerity campaign at CUNY, leading to several direct confrontations with the administration.

Olivia Wood

March 19, 2023