Does the Fed actually care about unemployment?

The Federal Reserve’s insistence on raising interest rates in this economy is antithetical to one of its two main objectives.

Traders on the floor of the New York Stock Exchange during morning trading on Feb. 1, in New York City. Stocks opened low amid news of another interest rate increase by the Federal Reserve in its continued effort to slow inflation.Michael M. Santiago/Getty

In baseball, batters have to make a nerve-wracking decision when the count is full. One more ball gets them a free walk to first base; another strike and they’re out. Should they swing if the pitch isn’t in their sweet spot or should they hold steady and hope the umpire calls a ball?

More often than not, batters will swing, even when that’s not their best chance of getting on base. So why do they do it? Well, they might bat a foul ball and force another pitch. They might even get a hit. But speaking from experience — drawn from my less than illustrious middle school baseball career — the reason we swing boils down to a simple truth: It feels better to go out swinging than to be standing embarrassingly still when the umpire calls the last strike. At least I tried, I used to tell myself.

Faced with a similar, albeit far more consequential, dilemma of deciding between action and inaction, the Federal Reserve has proved itself to be a steadfast fan of my middle school batting strategy. No matter how limited the tools at its disposal, the last thing the Fed seems to ever want is to appear like it’s doing nothing on inflation. Since prices began soaring last year, the Fed has opted to swing, aggressively raising interest rates despite the fact that there’s nothing close to a guarantee that doing so would be best for the economy.

Even as inflation has eased for six straight months, the Fed is committed to showing markets that it takes action, announcing yet another interest rate hike on Wednesday. Though it’s less aggressive than previous ones — a quarter of a percentage point increase compared with the three-quarter point peaks of last year — the Fed indicated that there will be more hikes to come. But it’s not clear why the Fed believes that hitting the brakes, even if more softly, is still necessary, especially given that it will take time to see the full effects of its previous hikes. That’s why what’s probably driving the central bank’s decision-making is not some precise calculation based on rigorous data analysis but the mere desire to have observers believe that it’s doing something rather than nothing.

But while that strategy worked for me whenever I was at bat — even if my team lost because I struck out, I’d still join my teammates on a much-anticipated fast food trip after the game with my dignity intact — it doesn’t necessarily work for the Fed. To the contrary, striking out in this case could mean a serious recession.

The Fed is hoping its interest rate hikes will create more unemployment, which would further ease inflation by reducing people’s spending. Not only is that a risky strategy — unemployment could quickly spiral out of control — but it’s also expressly antithetical to one of the Fed’s two main objectives.

In the 1970s, Congress enacted what is now known as the Fed’s dual mandate to pursue both price stability and full employment. But the truth is the Fed has never taken the employment part of its mandate all that seriously. Whenever inflation has reared its head, the Fed has thrown its pursuit of full employment out the window.

Shortly after the dual mandate became law, for example, the Fed responded to high inflation by sharply raising interest rates and triggering a recession to show markets that it would never tolerate price instability. Today, Fed chair Jerome Powell wants to display the same resolve, full employment be damned. He’s out there swinging to show markets that he won’t stand still while prices continue to rise, even though his tools to fight inflation have been especially blunt this cycle — incapable of addressing major inflationary pressures like energy costs or supply-chain bottlenecks.

All Powell can really do now is hurt the labor market. But by ignoring its goal of achieving full employment, the Fed is making lower-wage workers carry the burden of taming inflation by putting them out of work or erasing the significant wage gains they’ve made in the past decade, some of which had actually kept up with inflation before the Fed’s intervention.

That’s why the Fed would be wise to take a page out of the Houston Astros’s playbook, which encourages batters facing a full count to hold back from swinging at an iffy pitch. The odds of getting a walk in that situation are higher than getting a hit. Still, anxiety and the pressure to do something eat away at even some of the most well-trained athletes. Just ask the Astros’s Michael Brantley, who, facing a full count with two outs in the bottom of the ninth of Game 7 of the 2019 World Series, struck out swinging on a slider, handing the Washington Nationals its first championship win in franchise history.

Sometimes doing nothing is, in fact, better than doing something.