The Human Costs of the Fed’s War on Inflation

The Human Costs of the Fed’s War on Inflation

The Human Costs of the Fed’s War on Inflation

If there is no painless way to combat inflation, as Fed Chair Jerome Powell suggests, then we should at least be honest about who will endure the pain.


A. Philip Randolph, the great civil rights leader and labor organizer of the mid-20th century, said in 1966, “How we combat inflation, or the threat of inflation, is at bottom a moral or social question.”

Randolph was arguing against those who believed that the only way to fight inflation was for the federal government to cut back on spending, particularly on social services. Although he conceded that something had to be done, he cautioned against embracing policies that would inflict disproportionate harm on the most vulnerable. Yet many political elites claimed there were no alternatives. Americans were told, as they are being told now, that to save “the economy,” sacrifices would have to be made.

The technocratic nature of these discussions makes it easy to forget that “the economy” is not a battery of numbers and statistics but rather the totality of society. As a result, when the case is made that sacrifices must be made to save “the economy,” the immediate follow-up questions should be: Who is being asked to sacrifice, and what does this sacrifice entail?

This time, the Federal Reserve has told the public that the only way around inflation is by going through it, meaning that Americans will have to endure pain—and potentially deep pain—for the Fed to achieve “price stability.”

Why is price stability such a concern for the Fed? Though inflation hurts those who are least able to afford an increase in prices (like those on fixed incomes), inflation can, in some instances, be beneficial for working people, especially if their wages manage to keep pace with it—though under the neoliberal period, this has generally not been the case. But for those who hold a significant portion of their wealth in assets like bonds, inflation can eat away at future earnings, while interest rate increases (one of the Fed’s purported solutions to inflation) can lead to a drop in stock prices. Given that the investor class—which only comprises about 15 percent of the US population—wields considerable political influence, it should come as no surprise that its interests have typically been central to the Fed’s policy-making.

We would do well to acknowledge something about the Federal Reserve. While it claims otherwise, the Fed is a political institution. The policies it pursues in the name of price stability will produce winners and losers. It helps to determine who gets money and who decides where money flows.

Acknowledging this allows us to better situate the Federal Reserve’s actions and more specifically its inflation-taming pursuits. Though the Fed spent time earlier this year rebutting charges that it was intentionally inciting a recession to combat inflation, its anti-inflation strategy of moderating demand by suppressing wage growth has recently become more overt. Moreover, though it won’t say so explicitly, it is also apparent that the Fed has decided that the people it expects to sacrifice the most are those who can least afford it: poor and working people.

The following quote from Fed Chair Jerome Powell’s September 21 press conference provides a case in point. “We’re never going to say that there are too many people working, but,” Powell stated, “what we hear from people when we meet with them is that they really are suffering from inflation. And if we want to set ourselves up [to] really light the way to another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that, [but] there isn’t.” (Emphasis added.)

If there really is no painless way to combat inflation, as Powell suggests, we should be honest about who will endure most of that pain and what it might look like. We must be clear about the sacrifices that the Fed is expecting the most vulnerable to make in order to save “the economy.”


Escalating rents have forced Americans into economic and social insecurity across the country. In cities like New York and San Francisco, where average rents have recently reached record highs, many residents spend upwards of half their total income—and in some cases, even more—on rent. And though the Fed claims that declining home prices in many metropolitan regions is evidence that its strategy of raising interest rates is producing positive returns, a closer examination reveals a far more complicated picture.

While housing prices are falling in parts of the country, who stands to benefit most is less clear. Analyses have shown that, since the onset of the Covid-19 pandemic, private investors have gobbled up an increasing share of available properties, driving up housing costs. But now that demand is falling, these same private investors—many of whom have large sums on hand amassed over years of “quantitative easing” and are looking to real estate as a hedge against inflation—will find themselves well-positioned to outbid the prospective middle-class buyers with less cash on hand. The logic of quantitative easing is fairly straightforward. When the economy slows, the Fed makes it easier for investors to borrow (by lowering interest rates, for instance), in hopes of jump-starting a floundering economy. Most recently, the Fed used quantitative easing to prop up the economy during the Covid-19 slowdown. Many investors, however, did not use that money productively. Instead, they invested in one area that seemed to promise high returns: real estate.

Although recent interest rate hikes have cooled demand in many housing markets, it is not clear whether working- and middle-class Americans will benefit from the downturn, at least in the near term when relief is most needed. Aspiring homeowners—hoping that a drop in home prices might offset mortgage rate increases—are still being forced to compete with private investors who have far more cash on hand (thanks in no small part to the Fed’s policy of quantitative easing), while renters are increasingly finding that private investors turned landlords are keen to charge exorbitant rents. It appears, then, that investors, not everyday Americans, stand to benefit most from the Fed’s money-tightening policy.


Though the Fed admits that relying upon interest rate increases to battle inflation is a “blunt” instrument that will cause many American families pain, it seldom stops to consider the social costs of a recession. What does it mean to have an economy where a growing segment of the population has either been thrown out of work or cannot find work with adequate pay—particularly in a nation with an inadequate social net? What happens when people must find alternate means of making ends meet? They become desperate. And desperation, as researchers have long shown, can drive many forms of criminal activity, including property crime and robbery.

In cities across the country, property crimes such as vehicle break-ins and theft have risen sharply over the past two years. Though there is no single cause of a rise in such incidences (there never is), economic downturns are often accompanied by such spikes. Suppose the Fed stays the course, exacerbating affordability issues in the process. In that case, cities will likely find themselves managing the effects of this downturn by cracking down on homelessness while also beefing up their police forces, as many have done over the past couple years. And given that people of color, due to historical and ongoing racial exploitation, are overrepresented among the poor and working classes (not to mention the un- and underemployed), these policies could exacerbate existing racial inequalities, while failing to deal with the structural issues that actually lead to an increase in crime.

Mental Health

Throughout the pandemic, many Americans have suffered in regard to their mental health. In the face of loneliness and alienation—which are characteristic of neoliberal capitalism but have become especially pronounced since the onset of Covid-19—many Americans have sought to find ways to cope. This is no small matter: In many communities, the opioid crisis has reached epic proportions, and, for the first time in generations, life expectancy is falling, and rates of suicide are up. This capitalist economy has put Americans through the wringer.

The Fed’s inciting of a recession, and the economic and political volatility that such a strategy will provoke, will only worsen our current mental health crisis. Mental health services are, for many, cost-prohibitive, and a recession will likely only grow the ranks of those who cannot afford help. Economic downturns also engender household instability, as cases of domestic violence tend to rise during recessions. So while the Fed might hand-wave at the pain wrought by its actions, it fails to reckon with the actual human costs of its policies.

What Can Be Done?

Though the picture outlined above might seem bleak, it is not a fait accompli. On the labor side of the equation, a burgeoning worker movement is committed to holding employers to account—companies are, in many instances, registering record profits but remain steadfast in their reluctance to distribute those earnings more equitably. Of course, corporations will not willingly submit to doing so, as evidenced by their union-busting efforts. But there is strength in numbers, and worker solidarity can serve as a counterbalance to the scorched-earth corporate opposition to unionization.

Less tactical, but perhaps even more important: We must begin to politicize the Federal Reserve. As debates over democratic backsliding ensue, we must not take the Fed and its undemocratic management of the money supply for granted. The stakes are too high. Fed Chair Powell claims there is no painless way to get inflation under control, and so now we all must fight to make sure the bulk of that pain does not fall upon those who can least afford it: the poor and working classes. A nation that was an actual democracy would not allow this to happen.

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Katrina vanden Heuvel
Editorial Director and Publisher, The Nation

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