The NY Times' 11/2/22 Morning email wrote: "A bag of potato chips for $6? Some companies and restaurants are raising prices even after covering inflation-related costs."
Meanwhile:
The NY Times' 11/2/22 DealBook email explained the Federal Reserve's interest rate increases this way: "The increase would continue the Fed’s effort to douse inflation by raising borrowing costs to reduce consumer demand."
This common explanation is clearly flawed. Prices of consumer goods are going up, which by itself would have made it harder for consumers to buy as many products. It is true that when some consumers find they don't currently have enough money to make a purchase they may consider borrowing money to buy it. And higher interest rates may cause them to decide not to borrow. But the underlying problem is the rising prices. And it's rather round-about to attack rising prices by raising interest rates so consumers who lack the funds to buy what they need can't afford to borrow the money to do so.
For decades, employers have been holding down pay (except for high level management,) eliminating pensions, and chipping away at other areas that support workers. The rich have had their taxes cut, businesses have been paying little in taxes, the government has bailed-out various big corporations, etc. The incomes of billionaires jumped during the COVID pandemic. One billionaire was just able to buy Twitter for $44 billion. And many businesses took pandemic assistance intended to have them keep paying their workers - even though they didn't. Meanwhile, the federal minimum wage has stayed the same, and more companies circumvent the minimum wage by treating their workers as "contractors."
When gasoline prices skyrocket, rather than putting a limit on increases, states either do nothing or lower gasoline taxes. When they lower gasoline taxes, they're essentially taking money from taxpayers to help businesses continue taking from consumers.
Yet, the "solution" is that higher prices aren't making it hard enough for consumers, so the government must tighten the rope around working people’s necks.
Why not just have price controls limiting how much more businesses can charge consumers? Or limiting price increases to approximately the average increase in wages for non-management employees? (Or the other way around, require corresponding increases in wages when a business raises prices. Just as raising interest rates is supposed to discourage consumer spending, requiring increased wages could discourage price hiking.) While there is talk in some corners about windfall profit taxes, that is treated as more controversial than taking it out on consumers.
Instead, the approach is to slow down the economy (perhaps causing a recession, perhaps not quite that much.) If bosses aren't getting as much money as they want from consumers, they will squeeze workers more. Maybe they just refuse to raise pay for non-managers, maybe they lay off workers. In either case, workers will lose more than the bosses. That’s how the racket works.