Carlyle’s David Rubenstein: Jerome Powell thinks rising unemployment will lower inflation


In the late 1990s, Jerome Powell got a new job as a partner in the Carlyle Group, one of the largest private equity firms in the world, with a massive market capitalization of $11 billion and even more $376 billion in assets under management.

Just a few years after Powell left Carlyle, he was appointed to the Federal Reserve Board of Governors, of which he is now chairman.

Carlyle was co-founded by David Rubenstein, a billionaire who served in the Jimmy Carter administration and is very active in philanthropy while remaining Carlyle’s non-executive co-chairman. He knows Powell very well and has some thoughts on his inflation-fighting experts.

Powell has raised interest rates four times in 2022, hoping to cool the economy and lower consumer prices. And while there are signs that his strategy is starting to pay off, inflation remains well above the Fed’s 2% target rate.

Rubenstein took to CNN last week and shared what he thinks Powell might be thinking in these tough economic times, but just can’t say.

“He can’t quite say that, but if the unemployment rate goes up to 4% or 5% or 6%, inflation [probably] be a bit tame,” Rubenstein said. “But he can’t come out and say, ‘I hope the unemployment rate goes up to 6 per cent.’ It doesn’t sound very politically appealing to say that.

What Powell said instead was bad for the stock market — and probably your 401(k).

Until the job is done, even if it means bringing the “pain”

If Rubenstein is right and Powell wants the unemployment rate to rise to 6%, that would be devastating for American workers.

About 1.6 million jobs are lost for every 1 percentage point increase in the unemployment rate, according to Mark Zandi, chief economist at Moody’s Analytics. And in August, the unemployment rate was just 3.7%.

What Powell has said, repeatedly, in recent months is that he is committed to raising interest rates until there is significant evidence that inflation is well under control. , even if it means some “pain” for Americans. His stance puts one part of the Fed’s dual mandate (price stability) firmly in the driver’s seat, while the other (maximum employment) has been pushed into the background.

“Price stability is the responsibility of the Federal Reserve and serves as the foundation of our economy,” Powell said at a central bank symposium in Jackson Hole, Wyo, last month. “Without price stability, the economy does not work for anyone.”

On Thursday, the Fed Chairman doubled down on his inflation-fighting stance.

“History is a strong warning against premature policy easing,” Powell said during a Q&A presented by the Cato Institute, referring to the persistent inflation of the 1970s and 1980s. can assure you that my colleagues and I are strongly committed to this project and we will stay with it until the job is done.”

Bank of America chief U.S. economist Michael Gapen said in a research note on Thursday that after Powell’s latest comments, he expects the Fed to raise interest rates by 75 basis points. additional basis at its September meeting.

Of course, what Powell doesn’t explicitly state when he talks about raising rates is the expected impact of his policies. To control inflation, asset prices must fall and the unemployment rate must rise.

Rubenstein is not alone in noticing that the Fed seeks to sacrifice American jobs to bring down inflation.

“When the Fed does that, and when Larry Summers and them say, ‘well, we should have higher unemployment.’ He never says, ‘Do you understand what we are saying here?’ said William Spriggs, an economist at Howard University. Fortune in August, referring to the hawkish Fed and the former Treasury Secretary. “’We want people to lose their jobs. I want people to be unemployed. And I’m telling you, the rest of us are going to be better off if we sacrifice those people’s incomes.

Spriggs noted that Fed officials rarely acknowledge the impact of their policies on struggling consumers, and especially women and communities of color.

“Look, I know Jay Powell. Jay Powell is not a racist. He is absolutely not racist. But given the framework he works in, given the role models he has in front of him, he ends up making these decisions that result in real racial disparities,” Spriggs said. “It’s not a ‘race-neutral’ policy. They just raise interest rates. That’s what they do. It raises interest rates for everyone. But the result is not race-neutral.

For Spriggs, while the unemployment rate for white Americans is only 3.2%, some 6.4% of black or African Americans still struggle to find work. And researchers from the Federal Reserve and the Brookings Institute found in a 2019 study that communities of color are being disproportionately impacted by rising unemployment compared to the general population.

“The fluctuations of less advantaged groups, including blacks, Hispanics and those without a college education, are more pronounced. When the labor market weakens, these groups tend to suffer disproportionately; when he recovers, their experience improves disproportionately,” they wrote.

Rubenstein did not immediately respond to The wealth request for comment.

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