Should we prioritize deflation over jobs?

Jerome Powell, Chair of the Federal Reserve, projected the central bank’s rate hitting 4.4% by the end of the year. The Fed predicts the increase will increase unemployment by 1.2 million people.

Why should we care?
Powell suggests that no painless strategy exists to bring prices down. While this may be true, some analysts argue that attempting to decrease demand-side costs by increasing unemployment is premature and short-sighted. According to former Fed economist Claudia Sahm, the majority of inflation stems from supply-chain issues, which are predicted to stabilize next year. “With enough demand destruction, central banks can lower inflation now, but only temporarily and with great pain,” Sahm said. “Why do it?” Major financial players like Bank of America are predicting a severe shift in the job market due to these deflationary strategies; it sees 3.2 million more people out of work next year compared to 2022. Josh Bivens, Research Director at the Economic Policy Institute, said the Fed is “now pointing the plane at the ground pretty hard and hitting the accelerator." Fintechs should probably brace for impact—especially those working with low-income groups, which will be hit the hardest with the highest proportion of layoffs and largest relative adjustments to their budgets and savings. With such a focus on prices, the Fed may seriously hamper innovation in the financial space, and hinder public access to powerful financial tools in the process.