Is the Fed’s Policy on Raising Interest Rates Hurting Consumers?

Purple Calculator with the word Inflation on the screen

I saw this article by Steve Hanley on CleanTechnica, who argued that the Fed’s interest rate increases will hurt consumers instead of helping them. This is an interesting perspective.

The Fed’s interest rate increases are designed to slow the economy, but Hanley says they are going to hurt Main Street by putting people out of work.

As demand slows for goods and services, businesses lay people off because of low demand. When people are not working, it slows demand even further because people can’t afford to buy goods and services.

Hanley argues that the real issue is corporate profiteering. Indeed, Consumer Watchdog recently issued a report calling for an excess profits tax, because the energy industry is making record-breaking profits right now.

Jamie Court, president of Consumer Watchdog, said, “The proof of the gouging is in the oil refiners’ own profits reported to investors. When the California gap with US gas prices was $1.25 per gallon in June, California refiners reported unprecedented profits in the West of more than $1 per gallon – up to ten times their return last year. Now that the California gouge gap with US prices has doubled to nearly $3 per gallon, California oil refiners’ windfall profits have surely grown and could have doubled because their production costs have not increased.  The truth will come out in third quarter investor reports released at the end of the month. Historically every gas price spike in California shows up as profit spike as well. The only way to rein in these outrageous gas prices is to take back the oil refiners’ excess profits.”

California recently enacted the California Oil Refinery Cost Disclosure Act, SB 1322, which provides for an excess profits tax in the state.

Beginning in January 2023, California oil refiners will have to publish their monthly gross refining margins, their actual crude oil costs, and other information about their gasoline sales, which will allow the public and lawmakers to determine how much energy companies are making over and above their historical profits in California and in other parts of the country.

According to Court, some California oil refiners made an $1 per gallon in the West during the 2nd quarter of 2022, which has never happened before. He also says that setting a baseline gross refining margin based on historical precedent of 50 cents per gallon would allow the state to recoup profits above that baseline and potentially return that money to the state’s consumers.

It sounds like the monthly reports will allow consumers in other parts of the United States to see what they are charging in their area of the country, perhaps an unintended benefit but a benefit nonetheless.

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