STEVE INSKEEP, HOST:
The Federal Reserve now plans to raise interest rates again and again. It's a bid to counter inflation, which is one of the Fed's two main jobs. William Spriggs is following this news for us. He is chief economist for the AFL-CIO. He's at Howard University, and he's been at the Department of Labor in the past. Welcome to the program.
WILLIAM SPRIGGS: Thank you for having me today.
INSKEEP: Is this series of quarter-point interest rate hikes going to be enough?
SPRIGGS: Well, it doesn't address the issue that's causing inflation. We're having inflation in large part - two of the points causing inflation - two of the percentage points - come from automobiles. And this is because this is the longest period we've had a slump in auto production of this magnitude. We're still 40% below production levels from before COVID because of the lack of chips.
INSKEEP: Yeah.
SPRIGGS: And of course, we all know the price of oil has been spiking because of what's going on with Russia's invasion of Ukraine. And Ukraine is the breadbasket of Europe. So we're going to have disruptions to wheat prices, to corn prices, which means to meat prices. None of those things are going to be affected by raising interest rates. This is a series of supply shocks.
INSKEEP: Oh, this is very interesting because, of course, interest rates would be the main tool that the Fed has to attack inflation in this situation. But you're telling me that the problem is not too much money awash in the economy. It's a lack of supply.
SPRIGGS: It's a lack of supply. And it's happening in so many different sectors, autos being a very major sector, oil being a very major sector. And we know that some companies are taking advantage of this moment to raise prices because they have market power to do so. But the Fed can sort of cajole them by letting them know that that's not good. But tomorrow, the price of oil is not going to come down because the Fed raised interest rates.
INSKEEP: Is it possible that prices will gradually come down, though, because people are going to be squeezed? It's going to be a little bit harder to borrow money.
SPRIGGS: Yes, but we need to be wary because it's not so much that we don't borrow money, we stop buying goods. And when you stop buying goods, that means employers don't need to hire as many workers. That is what we have to be thinking about. So when people say, oh, I'm glad they're going to slow down the economy, they need to think through what does that mean to slow down the economy?
INSKEEP: I'm also interested in what this does to the housing market. Of course, the Fed's benchmark interest rate doesn't always directly correlate to home mortgage interest rates, but there can be a connection between the one and the other. And what does it do to the housing market if interest rates were to go up when the housing market has been, up to now, extraordinarily hot?
SPRIGGS: It can slow it down. The home mortgage interest rate is a long-term rate, and many people may be convinced - bankers - that, well, now the Fed is acting. There won't be long-term inflation. And so the home interest rate may not go up that much because they're going to be more convinced, yes, in the long run, the Fed has this under control.
INSKEEP: What do you think ultimately will bring down inflation if you are skeptical that the Fed's action will have that much of a direct impact?
SPRIGGS: The human race must beat COVID, and we have to handle Putin. We have to get him out of Ukraine. We have to get Ukraine back to being able to produce and be free. That's what it's going to take to get us back to where trade and economic activity are normal.
INSKEEP: William Spriggs, chief economist of the AFL-CIO, a pleasure talking with you. Thank you, sir.
SPRIGGS: Good to talk to you.
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