Elizabeth Warren Accuses Fed Chair of Fomenting 'Devastating Recession'

With the Federal Reserve widely expected to enact another large interest rate hike at its policy meeting later this week, Sen. Elizabeth Warren took to the pages of the Wall Street Journal on Sunday to warn that the central bank's approach to tackling inflation "risks triggering a devastating recession" without directly addressing many of the key drivers of recent price surges.

While acknowledging that inflation is "an urgent problem" and that interest rates can "play a key role in maintaining price stability," the Massachusetts Democrat argued that aggressive rate hikes "are largely ineffective against many of the underlying causes of this inflationary spike," such as gas and food prices.

"The resulting recession will leave millions of people--disproportionately lower-wage workers and workers of color--with smaller paychecks or no paycheck at all."

Jerome Powell, the chairman of the Fed, admitted as much when Warren pressed him on that point during a Senate Banking Committee hearing last month. Asked whether the Fed's rate hikes are expected to bring down gas and food costs, Powell said forthrightly, "I would not think so, no."

Nevertheless, Fed officials appear poised to stay the course with another 75-basis-point rate hike during its July 26-27 policy meeting despite growing evidence that gas prices and other crucial metrics--including overall economic growth--are cooling substantially.

In recent weeks, economists and lawmakers have voiced grave concerns that the Fed is on the verge of undoing recent labor market gains, further suppressing workers' wages, and throwing the economy into a harmful downturn. The Fed's increasingly hawkish monetary policies could also have major impacts on poor countries around the world.

In her Journal op-ed, Warren noted that "when the Fed raises interest rates, increasing the cost of borrowing money, it becomes more expensive for businesses to invest in their operations."

"As a result, employers will slow hiring, cut hours, and fire workers, leaving families with less money," the senator wrote. "In the bloodless language of economists, that's referred to as 'dampening demand.' But make no mistake: If the Fed cuts too much or too abruptly, the resulting recession will leave millions of people--disproportionately lower-wage workers and workers of color--with smaller paychecks or no paycheck at all."

Warren went on to directly criticize former Treasury Secretary Larry Summers, pointing to his recent claim that the U.S. needs "five years of unemployment above 5% to contain inflation--in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment."

The current U.S. unemployment rate is 3.6%, according to the latest data from the Bureau of Labor Statistics.

"You read that correctly: 10% unemployment. This is the comment of someone who has never worried about where his next paycheck will come from," Warren wrote in response to Summers. "If Messrs. Powell and Summers have their way, the resulting recession will be brutal. As in past downturns, Republicans in Congress will press for austerity--tax cuts for giant corporations and the rich, weaker regulation on big businesses, and little economic support for the most vulnerable."

The Massachusetts Democrat urged her party, which narrowly controls Congress, to "be ready to reject the Republican playbook and prepared to help working families survive."

Much of the Democratic Party's domestic agenda remains stalled in the U.S. Senate due to persistent obstruction by Sen. Joe Manchin (D-W.Va.), who has repeatedly cited inflation to justify his opposition to new spending on climate action and other key priorities.

But Warren argued Sunday that many of the progressive policies Manchin is blocking would help bring down soaring costs throughout the U.S. economy.

"Investing in high-quality, affordable child care would lower costs by bringing more than a million parents into the workforce," she wrote. "Ending tax breaks for offshoring and investing in American manufacturing would create good jobs and strengthen supply chains. Allowing Medicare to negotiate prices for prescription drugs would lower healthcare costs. And giving the Biden administration more tools to bolster competition policy would help crack down on price gouging by large corporations."