As the Federal Reserve kicks off another pivotal rate-setting meeting, lawmakers are reminding the central bank exactly just how high the stakes are.
In a letter sent Monday to Fed Chair Jerome Powell, Democratic senators expressed concern about the Fed’s plan to continue raising interest rates at an “alarming pace” and Powell’s “disturbing warning to American families” that they should expect pain in the coming months.
The Democrats, including Sen. Elizabeth Warren, Sen. Bernie Sanders and Rep. Katie Porter, highlighted comments from economists who worry the Fed is moving too aggressively to squash inflation. They pointed to a recent warning from the United Nations of a central bank-fueled global recession.
The letter represents the latest effort by Democrats to push back on the Fed’s inflation-fighting efforts. Colorado Sen. John Hickenlooper warned last week it would be “foolish” for the Fed to keep raising rates.
Faced with the worst inflation in four decades, the Fed is lifting interest rates at the fastest pace since the early 1980s. This campaign has crushed the stock market, spiked mortgage rates to 20-year highs and fueled recession fears.
Yet the lawmakers note that Powell himself has conceded the Fed can’t cure the supply-related problems that have lifted food and energy prices.
“There are many things we can’t affect, and those would be, you know…the commodity price issues that we’re having around the world due to the war in Ukraine and the fallout from that,” Powell said during a June press conference.
The Fed has signaled that its war on inflation will likely create job losses, a point the Democrats chronicled in detail in the letter. Last month, the Fed projected the unemployment rate will climb from just 3.5% today to 4.4% next year.
The Democrats asked Powell to respond by Nov. 14 to a series of questions about just how much economic pain Americans should be bracing for.
Noting the Fed’s new unemployment forecast, the lawmakers asked: “According to the Fed’s estimates, how many job losses, in millions, would that forecast imply?”
The lawmakers asked the same question of potential job loss based on Bank of America’s projection for an even higher unemployment rate of 5% in 2023. They also want Powell to detail the breakdown of job loss by sector, gender, race, educational attainment and wage quartile.
“Has the Fed seen evidence that its monetary policy actions have embedded expectations of recession among market participants and consumers?” the lawmakers asked.
In many ways, the Fed finds itself in a nearly impossible situation: Taming inflation without causing a downturn.
Powell said last month that no one knows if the Fed’s inflation fight will cause a recession, or how deep that recession might be. But he stressed that letting inflation run amok would create an even worse situation.
“We’re committed to getting inflation back down to 2%,” Powell said, “because we think that a failure to restore price stability would mean far greater pain later on.”