Oct 14, 2022
Despite the massive stakes for the U.S. and global economy, most congressional Democrats have thus far shied away from vocally criticizing the Federal Reserve over its potentially recession-inducing approach to fighting inflation.
Sen. Elizabeth Warren (D-Mass.) is one prominent exception.
"Powell has said that the Fed's rapid interest rate hikes will bring 'pain' for working families."
On Thursday, following the release of Labor Department figures showing that inflation rose again in September even after a series of aggressive interest rate hikes by the Fed, Warren wrote on social media that "throwing Americans out of work with a recession is not the solution to fight inflation."
The Massachusetts Democrat's message, hardly her first pointed critique of the central bank's actions, echoed warnings from economists that Fed Chair Jerome Powell's campaign to bring down inflation by crushing demand is likely to push the U.S. economy into recession--and possibly bring the rest of the world with it.
Warren noted in her tweet Thursday that Powell himself has conceded interest rate hikes will hurt workers and businesses while doing nothing to push down key drivers of inflation, which has been fueled by supply-chain snags, Russia's war on Ukraine, corporate profiteering, and other factors out of the Fed's control.
"Chair Powell has said that the Fed's rapid interest rate hikes will bring 'pain' for working families and even admitted it won't lower food or gas prices," the progressive senator wrote.
Powell's admission came during an exchange with Warren at a Senate Banking Committee hearing in late June, a week after the Fed enacted its largest rate hike in nearly three decades.
A month after that hearing, Warren penned a scathing Wall Street Journal op-ed cautioning that the Fed's decisions risk "triggering a devastating recession" and leaving "millions of people--disproportionately lower-wage workers and workers of color--with smaller paychecks or no paycheck at all."
Despite concerns from Warren, outside experts, and the Fed's own economist, the U.S. central bank has enacted two additional 75-basis-point rate hikes since June, and it is widely expected to impose another large increase during its upcoming November meeting.
The Fed's own projections indicate that its effort to rein in inflation could throw 1.5 million U.S. workers out of their jobs by next year.
While the Labor Department's topline inflation figure remains stubbornly high, the Fed's rapid tightening of financial conditions is having a noticeable impact on the U.S. economy, particularly in the housing market. This week, the average 30-year fixed mortgage rate hit a 20-year high of 6.92%--a development that has the perverse effect of pushing more people into the rental market, driving up prices there.
Hiring has also begun to slow and jobless claims have risen for two consecutive weeks, heightening concerns that the Fed has already overdone the rate hikes and secured a painful economic downturn.
But as both progressive and conservative economists sound the alarm, Democratic lawmakers and Biden administration officials--including President Joe Biden himself--have largely been quiet about the Fed's policy moves.
As Politico reported earlier this week, "there's been little public criticism among Democrats in Congress--even though they're the ones most likely to pay a political price if soaring interest rates send the economy into a recession."
"In interviews with key lawmakers on Capitol Hill, House and Senate Democrats mostly responded to Powell's campaign to quash inflation with resignation and a note of caution," the outlet noted. "Few have been willing to admonish him--including in multiple hearings."
"I don't have a lot of thoughts on what the Fed does," Sen. Sherrod Brown (D-Ohio), chair of the Senate committee that oversees the Fed, told Politico. "We have no control over that."
Powell was originally nominated to lead the Fed by former President Donald Trump. Late last year, ignoring pressure from climate advocates and some progressive lawmakers to replace him, Biden renominated Powell for another term, and the Senate confirmed him in an overwhelming vote of 80-19.
Warren was among the lawmakers who voted against confirming Powell, as was Sen. Bernie Sanders (I-Vt.), who has joined the Massachusetts Democrat as one of the few vocal Fed critics in Congress.
"No, Chairman Powell. At a time when real weekly wages are lower today than they were nearly 50 years ago, the problem is not that wages and employment are too high," Sanders wrote on Twitter last week, referring to Powell's stated effort to "get wages down."
"The problem is that corporations are making record profits by jacking up prices," Sanders added. "We need a windfall profits tax."
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