The Weekly Show with Jon Stewart: Inflation Frustration as Fed Cuts Rates Release Date: September 19, 2024

In this incisive episode of The Weekly Show, host Jon Stewart delves deep into the multifaceted issue of inflation and the Federal Reserve's recent decision to cut interest rates. Joined by esteemed guests Kitty Richards, Senior Fellow at Groundwork Collaborative and former Treasury official, and Jason Furman, Professor of the Practice of Economic Policy at Harvard University, the discussion navigates through the complexities of economic policy, inflation drivers, and the interplay between government stimulus and corporate practices.

1. Setting the Stage: The Economic Landscape

Jon Stewart opens the episode acknowledging the rapid pace of current events, likening the news cycle to a "Maxell commercial where the news is just blowing past us" (00:58). He emphasizes the urgency and overwhelming nature of recent happenings, from political declarations to global threats, setting the tone for an in-depth exploration of economic tensions.

2. The Federal Reserve's Decision to Cut Rates

The primary focus centers on the Federal Reserve's anticipated rate cut, a move not seen since the pandemic era. Stewart seeks clarity on the mechanics and implications of such a decision.

• Understanding Interest Rates: Kitty Richards explains, "04:01, "The Fed sets rates that really affect banks, and then banks lend money out based on the rates that they can borrow at. So when the Fed cuts rates, it brings things like mortgage interest down, student loan, floating student loan, credit card interest."

• Purpose of Rate Adjustments: Stewart articulates the Fed's dual objective: stimulating economic activity by lowering rates or cooling it down by raising them to combat inflation. Jason Furman concurs with excitement over the rate cut, humorously adding, "04:54, "I think that person also doesn't like Taylor Swift. But, you know, I don't know if these are related."

3. Decoding Inflation: Demand vs. Supply Side Factors

Stewart challenges the conventional narrative that the Fed's interest rate manipulations are the primary tools to control inflation, questioning the oversimplification of inflation's causes.

• Kitty Richards on Inflation Complexity: She emphasizes that inflation arises from various factors beyond just monetary policy. "07:16, "Inflation isn't just one thing. Inflation is rises in prices in lots of different things that are often driven by lots of different causes."

• Corporate Practices and Inflation: Richards critiques corporate profit strategies, pointing out that companies, benefiting from supply chain disruptions and market consolidations, have been able to inflate prices without proportionally increasing wages. "09:25, "What are the driving factors of it?... corporations did see really big supply driven cost increases... but they also had a lot of market power and were able to jack up prices well above their costs."

• Jason Furman's Perspective: Furman acknowledges the Fed's role in reducing inflation but argues that recent corporate tax cuts contributed more significantly to inflationary pressures by increasing corporate profits. "10:25, "there is a vast amount of empirical evidence about what happens when you raise interest rates. And when you raise interest rates, inflation goes down..."

4. The Role of Government Stimulus and Tax Policies

A heated debate ensues over the effectiveness and repercussions of government stimulus measures and corporate tax policies.

• Stimulus Impact: Stewart posits that direct consumer stimulus led to inflation by increasing demand, whereas corporate subsidies and tax cuts did not translate to increased consumer spending. "39:33, '...it was very clear when you stimulated the economy directly to people, you got more economic activity.'"

• Deficit Concerns: Furman counters by highlighting the relationship between budget deficits and interest rates, stating, "44:29, 'They have a higher budget deficit, increasing demand, pushing one way you have the Fed reducing demand, pushing the other way to cancel it out harder.'"

• Corporate Tax Cuts: Richards argues that the significant reduction in corporate tax rates has empowered corporations to prioritize shareholder profits over equitable wage distribution, exacerbating inflation. "20:35, 'They really supercharges the motive and opportunity to extract those profits... moving beyond the Econ 101 version.'"

5. Policy Recommendations and Future Outlook

As the conversation progresses, Richards and Furman outline potential policy measures to address inflation and economic imbalances.

• Corporate Tax Reforms: Richards advocates for raising corporate taxes to curb excessive profit extraction and redirect funds towards social programs. "60:15, '...we have to take a look at the entire tax code... how the wealthy and corporations are able to pay very little in tax at the expense of everyone else.'"

• Antitrust Measures: Emphasizing the need for antitrust actions, Richards suggests that limiting corporate consolidation can prevent price gouging and promote fair competition.

• Fed's Future Actions: Both guests discuss the possibility of the Fed adjusting interest rates more responsively to current economic indicators, with Richards calling for a "quick course correction" to alleviate the financial strain on families. "34:43, 'We need to spend some time after this period really thinking about what we've learned from this period.'"

6. Closing Remarks and Reflections

In the closing segments, Stewart reflects on the confrontational yet enlightening exchange with his guests, highlighting the necessity of bridging the gap between economic theory and public understanding. He underscores the importance of transparent and effective economic policies that prioritize equitable growth and stability.

Notable Quotes

• Jon Stewart on Complexity of Inflation:

  • "06:06 'But we don't really talk about the fact that I think the Fed raising rates and lowering rates doesn't have that much control over the complexities of why inflation happens.'"

• Kitty Richards on Corporate Collusion:

  • "18:59 'We've got lots of evidence of price fixing and corporate collusion... and firms have just wrung as much out of them as we can and give it back to shareholders with corporate stock buybacks.'"

• Jason Furman on Fed's Credibility:

  • "37:38 'Keeping people's expectations of inflation anchored. That's what did not happen in the 1970s and 1980s... because the Fed was so aggressive, they actually needed to do much less and cause much less pain.'"

• Jon Stewart on Government Spending Approach:

  • "55:49 'But we're hollowed out government services and we have been just over and over unprepared for these crises.'"

Conclusion

This episode of The Weekly Show offers a comprehensive exploration of the intricate dynamics between the Federal Reserve's monetary policies, government fiscal strategies, and corporate behaviors in shaping the current inflationary landscape. Through a spirited debate, Stewart, Richards, and Furman illuminate the need for nuanced economic policies that address both demand and supply-side factors, advocate for responsible government spending, and challenge entrenched corporate practices. The conversation underscores the imperative for policymakers to adopt a more holistic and equitable approach to economic stewardship, ensuring stability and prosperity for all segments of society.

Note: Timestamps correspond to the original podcast transcript for reference.