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With inflation continuing to rise, the Federal Reserve is expected to institute another hike to interest rates to arrest this flight. Fearing a recession, Democratic Senators are urging the Fed to tread carefully lest they trigger one just as the economy is exiting the COVID-19 pandemic.
The Federal Reserve’s Open Market Committee (FOMC) is expected to conclude its meeting on Wednesday with an announcement of a fresh round of interest rate hikes. In government inflation data for June, it was found that the Consumer Price Index (CPI) had risen 9.1% while the Producer Price Index shot up to 11.3%. These readings have added to the sense that Fed Chairman Jerome Powell will feel compelled to raise interest rates again.
Senate Democrats have not been particularly sanguine about the Fed’s hawkish stance. Instead, they worry that an aggressive push on interest rates is doing little to address other structural roots of current inflation and moves the economy closer to recession.
Sen. Elizabeth Warren, D-Mass., captured these sentiments Monday in a Wall Street Journal op-ed. She accused Powell of directing the Fed into “triggering a devastating recession.”
Warren, a longtime critic of Powell’s tenure as Fed chair, said that the central bank will create immense harm for millions of Americans if its actions result in a recession.
“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 wrote.
In this photo, Elizabeth Warren (D-MA) addresses a rally against Trump Administration budget cuts to education funding outside the U.S. Capitol in Washington, D.C., July 19, 2017.
Photo: Getty Images/ Chip Somodevilla
Other Democrats signaled concern about the Fed potentially triggering a recession if it raises rates too quickly.
Sen. Bernie Sanders, I-Vt., the chairman of the Senate Budget Committee, said Tuesday that he agrees with Warren’s assessment of the risks. Other senators voiced concerns that rising rates could further dampen demand for housing or make it more expensive to pay for infrastructure projects.
“They’ve [The Fed] got to make a call as to how serious this is. I agree with her. If you overdo it, you could push yourselves into a recession,” said Sen. Dick Durbin, D-Ill.
Powell has stated that it was not the Fed’s intention to induce a recession, but instead execute a “soft landing” that would see a manageable economic slowdown and a decline in inflation. However, he acknowledged that a recession remained possible and conceded in testimony before the Senate last month that rate hikes alone will not alleviate the inflationary pressures from frayed supply chains or Russia’s war in Ukraine.
Democrats’ concerns are amplified by voter pessimism about the state of the economy going into the November midterm elections. President Joe Biden’s handling of the economy has been rated poorly by voters and consumer confidence has continuously declined over high inflation.
Republicans have made inflation a central campaign point in their races, accusing Democrats of creating the crisis. In her op-ed, Warren obliquely mentioned these concerns, warning that a Republican-led Congress would only exacerbate the worst impacts of a recession if one comes to pass.
“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. Democrats should be ready to reject the Republican playbook and prepared to help working families survive,” Warren noted.
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