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jerome powell
Fed Urged to Quickly Slash Rates as Powell Warns of 'Downside Risks to Employment'
"Let's be clear: The Fed has all the data it needs to cut rates now—and it's past time to deliver relief for the American people," said the Groundwork Collaborative.
Aug 23, 2024
Federal Reserve Chairman Jerome Powell admitted during a closely watched speech Friday that the central bank's decision to keep interest rates high for an extended period has increased the risk of a labor market downturn, which could threaten the jobs and livelihoods of millions of U.S. workers.
After holding the federal funds rate steady at 5.25% to 5.50% for more than a year—even as economists and lawmakers warned of the harmful impacts on working-class Americans, the housing market, and the broader U.S. economy—Powell conceded Friday that "the time has come for policy to adjust," a strong signal that the Fed will cut rates at its September meeting.
"The inflation and labor market data show an evolving situation," Powell said in his remarks in Jackson Hole, Wyoming, the site of what's been described as "the world's most exclusive economic get-together."
"The upside risks to inflation have diminished," the Fed chair continued. "And the downside risks to employment have increased."
"The direction of travel is clear," he added, "and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."
The Fed's high interest rates are pushing people into debt and making life unaffordable for millions of families
Powell's remarks came two days after the U.S. Labor Department issued a significant downward revision of the nation's job growth estimates for 2023 and early 2024, heightening concerns that the Fed has waited too long to reduce interest rates. In the 12 months that ended in March 2024, the U.S. added around 818,000 fewer jobs than the Labor Department previously believed, according to the new figures.
"Let's be clear: The Fed has all the data it needs to cut rates now—and it's past time to deliver relief for the American people," the Groundwork Collaborative, a progressive think tank, said Friday in response to Powell's speech.
In a Thursday statement, Groundwork chief economist Rakeen Mabud called on the Fed to cut interest rates by "at least 75 basis points" at its meeting next month.
"The Fed's high interest rates are pushing people into debt and making life unaffordable for millions of families," said Mabud. "The biggest threat to the economy is not inflation, it's the Fed."
Bharat Ramamurti, senior adviser for economic strategy at the American Economic Liberties Project and former deputy director of the White House National Economic Council, also implored the Fed to "move quickly" on interest rate reductions "to avoid unnecessary harm to workers."
Inflation has fallen dramatically in the U.S. since it peaked at 9.1% in June 2022, but the Fed opted during its latest policy meeting last month to keep interest rates at a two-decade high for the 12th consecutive month.
The decision prompted the Revolving Door Project (RDP), a progressive watchdog group, to accuse Powell of succumbing to political pressure from Republican nominee Donald Trump and other Republicans who have warned the Fed chair to keep rates elevated until after the November elections.
Trump originally nominated Powell in 2017, and President Joe Biden decided to renominate the Fed chair for another four-year term despite progressive opposition.
Jeff Hauser, RDP's executive director, said earlier this week that "with the possible exception of Attorney General Merrick Garland, Federal Reserve Chair Jerome Powell is the worst appointee in President Joe Biden's administration."
"The sad irony is that Biden didn't have to renominate a Republican private equity executive to lead the Fed in 2022; in fact, we implored him not to," said Hauser. "Our concerns about Powell's ethical shortcomings, fickle commitment to full employment, and fealty to deregulation have, sadly, been borne out by his actions."
"Should she win the upcoming election," Hauser added, "Democratic presidential nominee Kamala Harris must heed the lessons of the Powell era and nominate a central bank leader without compromising ties to Wall Street who is dedicated to maximizing employment and strengthening financial regulation."
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The Lights are Flashing Red: The Fed Must Call an Emergency Meeting to Cut Rates
Making people walk an economic tightrope is not the path forward to a healthy economy.
Aug 09, 2024
Most people probably aren't thinking about the Federal Reserve's policy decisions on a daily basis. However, they feel the impact of them every day. High interest rates mean that paying down a credit card becomes more expensive, purchasing a home or a car feels out of reach, and the likelihood of losing your job goes up.
For months, the data have been hinting that the Fed's 23-year-high interest rates were starting to take a toll. U.S. household debt has surged to an all-time high, and delinquency is increasingly in the cards. And last Friday, the unemployment rate ticked up to 4.3%, and both employment and wage growth slowed down.
It is clear that the Federal Reserve made a massive mistake in not cutting rates in July. The Fed must call an emergency meeting and cut rates by at least 75 basis points immediately. Failing to do so risks inflicting even more pain on the same people who have borne the brunt of inflation since the pandemic.
Interest rates remain unaccountably high, continuing to put pressure on the well-being of the everyday people who keep our economy going.
Chair Powell has repeatedly expressed commitment to a (completely arbitrary) 2% inflation target. And by all accounts, we are at that target: the three-month annualized Personal Consumption Expenditures price index, the Fed’s preferred measure of inflation, is just 1.5 percent. But interest rates remain unaccountably high, continuing to put pressure on the well-being of the everyday people who keep our economy going.
The Fed's high interest rates are counterproductive, making a large rate cut now ever more urgent. Take housing, for example. The Fed's high interest rates put upward pressure on housing prices. High mortgage rates put homeownership out of reach for prospective buyers, pushing them back into the rental market, and driving up rents. High interest rates also make financing new housing construction more expensive, which means that builders don't build as many new homes. This is especially galling in the midst of a long-standing housing shortage of as many as 7 million homes.
High interest rates also make it more expensive for people to pay down their debts, increasing the likelihood of delinquency. A recent New York Fed report found that early delinquencies on auto loans and credit card debt began rising for low-income borrowers in 2022 and now exceed pre-pandemic levels, and credit card and auto loan balances are the highest they have been since the 2008 financial crisis. This is not just concerning for individuals and households, who face long-term scarring from these periods of financial stress, but also for the economy as a whole.
High interest rates aren't just getting in the way of building more houses and driving people into financial crisis, they're also blunting the impact of historic efforts to tackle climate change. Interest rates are more than double what they were when the Inflation Reduction Act passed. The IRA’s tax credits and subsidies require debt-financed private investment, which companies are eager to pursue. But many of these capital-intensive industries cannot withstand the burden of high rates. In offshore wind, for example, an estimated 60% of cost increases are squarely to blame on high interest rates.
The truth of the matter is that the Fed's sky-high interest rates aren't just making people's lives more difficult and stymieing much-needed investments. Using interest rates to tackle today's inflation also fails to tackle the root causes of the problem.
Today's inflation started because a pandemic collided with a broken supply chain built to maximize profits for the big corporations that designed it over any semblance of resilience and functionality. Those same corporations then hid behind the cover of inflation to jack up prices on consumers, raking in record profits along the way. Research from my organization, Groundwork Collaborative, found that from April to September 2023, corporate profits drove over 50% of inflation.
The Fed's sky-high interest rates aren't just making people's lives more difficult and stymieing much-needed investments. Using interest rates to tackle today's inflation also fails to tackle the root causes of the problem.
Powell himself has admitted that interest rate hikes can't tackle the supply-side issues at the root of today's inflation. And now the data are clear that he is taking the economy to the brink, despite low inflation and rising unemployment.
Making people walk an economic tightrope is not the path forward to a healthy economy. The Fed has a dual mandate to maintain stable prices and full employment. It's time for the Fed to take that mandate seriously and make a large and immediate emergency rate cut.
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Fed Urged to Enact Emergency Rate Cut as Global Sell-Off Stokes Recession Fears
Economist Paul Krugman argued there is a "real case for an emergency cut soon" as concerns grow that the Fed has waited too long to act.
Aug 05, 2024
A steep global sell-off in financial markets on Monday and broader concerns about the health of the U.S. economy sparked calls for the Federal Reserve to take the rare step of enacting an emergency interest rate cut—something last done at the start of the coronavirus pandemic.
The calls came as the Fed and its chairman, Jerome Powell, faced mounting criticism for not reducing borrowing costs earlier despite slowing job and wage growth and overwhelming evidence that U.S. inflation has cooled dramatically from its 2022 peak.
Jeremy Siegel, an American economist and finance professor at the Wharton School of the University of Pennsylvania, said in an appearance on CNBC Monday morning that the Fed should "at minimum" implement an emergency 75-basis-point cut to interest rates followed by another cut of the same size at its scheduled September meeting.
The current federal funds rate—the target interest rate set by the Fed—is 5.25% to 5.50%. Siegel argued that the rate should be "somewhere between 3.5% and 4%," noting that inflation is nearly at the central bank's arbitrary 2% inflation target while the unemployment rate is rising.
"How much have we moved the fed funds rate? Zero," said Siegel. "That makes absolutely no sense whatsoever."
"I'm calling for a 75 basis point emergency cut in the Fed funds rate, with another 75 basis point cut indicated for next month at the September meeting - and that's minimum," says Wharton's Jeremy Siegel: pic.twitter.com/s4CgWx962Q
— Squawk Box (@SquawkCNBC) August 5, 2024
Economist Paul Krugman also urged the Fed to act with an emergency rate cut, rejecting the counterargument that doing so could suggest policymakers are panicking.
"Even though I've been arguing for rate cuts—50 [basis points] in September for sure—I wasn't calling for an inter-meeting cut, because that might signal panic," Krugman wrote on social media. "But since we may be seeing a panic anyway, that argument loses its force. Real case for an emergency cut soon."
Monday's sell-off wiped $1 trillion off the market values of leading U.S. tech companies shortly after trading began, and Wall Street's "fear index" jumped to its highest level since 2020.
"Is this 1987 all over again?" asked a headline in The Wall Street Journal, referring to the infamous stock market crash known as "Black Monday." Reutersproclaimed that global markets were giving off "'Black Monday' vibes." The Financial Timesnoted that "Tokyo's Topix fell 12.2%, the sharpest sell-off since 'Black Monday' in October 1987 and more than erasing its gains for the year."
"The biggest concern here is they put us in a recessionary environment, and it's too late to course-correct."
U.S. lawmakers, economists, and progressive advocacy groups have been urging the chair of the world's most powerful central bank to cut interest rates for months, warning that keeping borrowing costs elevated for an extended period could do profound harm to workers as well as the broader U.S. and global economy. Higher rates have already taken a significant toll on lower-income Americans, in part due to rising interest payments and sky-high housing costs.
"Chair Powell, enough brinkmanship," the Groundwork Collaborative, a vocal advocate of rate cuts, wrote on social media Monday. "It's time to follow the data demanding rate cuts. It's time to put the American people first. It's time to cut interest rates now."
During its meeting last week, the Federal Open Market Committee (FOMC)—the Fed's policy-setting committee—opted to keep rates at a two-decade high for the 12th consecutive month, sparking allegations that Powell is succumbing to political pressure from Republican presidential nominee Donald Trump and GOP lawmakers.
Powell said a rate cut is "on the table" for the September FOMC meeting but did not make any explicit commitments.
Two days after the Fed decided to keep the current federal funds rate in place—which came even as other nations' central banks moved to lower interest rates—the U.S. Labor Department released data showing that the country added far fewer jobs than expected in July and that the unemployment rate rose to its highest level in roughly three years.
The data amplified concerns that the Fed has waited too long to reduce borrowing costs.
"I worry that they are behind the eight ball here," Groundwork executive director Lindsay Owens said last week. "And with every passing FOMC meeting where they don't move to correct for being behind the eight ball, the risks accumulate and compound."
"The biggest concern here is they put us in a recessionary environment, and it's too late to course-correct," Owens added. "Much better to course-correct early than late, in my opinion."
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