Democrats tell Fed chief rate hikes ‘disregard’ working families

Close to a dozen Democratic lawmakers called on Federal Reserve Chairman Jerome Powell to explain how many Americans will lose their jobs as a result of their efforts to mitigate high inflation.

In a letter to Powell released Tuesday, a group of 11 Democrats ripped Powell for a series of Fed interest rate hikes that could push the U.S. into a recession — but that the Fed chief admitted won’t stanch every source of inflation.

The Democrats also asked Powell to calculate how many Americans would lose their jobs if the unemployment rate rises to higher levels projected by Fed officials and private forecasters due to the Fed’s rate hikes.

“These statements reflect an apparent disregard for the livelihoods of millions of working Americans, and we are deeply concerned that your interest rate hikes risk slowing the economy to a crawl while failing to slow rising prices that continue to harm families,” the lawmakers wrote.

Sens. Elizabeth Warren (Mass.), Bernie Sanders (I-Vt.), Jeff Merkley (Ore.), and Reps. Madeleine Dean (Pa.), Jesús Garcia (Ill.), Sylvia Garcia (Texas), Katie Porter (Calif.), Stephen Lynch (Mass.), Rashida Tlaib (Mich.) and Jamaal Bowman (N.Y.) signed the letter to Powell sent on Monday.

The letter comes shortly before the Federal Open Market Committee (FOMC), the panel of Fed officials responsible for monetary policy, is expected to announce another steep interest rate hike Wednesday. 

The Fed is on track to raise its baseline interest rate range by 0.75 percentage points, marking the sixth rate hike this year. The steep increase comes amid growing concern the central bank will drive the economy into a recession in its bid to fight inflation.

As the Fed raises interest rates, the economy tends to slow as higher borrowing costs force consumers to spend less money and businesses to invest less in expansion and hiring. The resulting decline in sales and stagnation in wages should theoretically force businesses to stop raising prices.

Some economists, including Fed officials, believe the bank must raise rates high enough to cause job losses in order to bring inflation down from near four-decade highs.

“I wish there were a painless way to do that,” Powell said in September after the Fed last hiked rates, but added that “there isn’t.”

FOMC members at that meeting projected a median unemployment rate of 4.4 percent by the end of 2023, which implies more than 1 million Americans losing their jobs on net by the end of next year.

The Democratic lawmakers, along with a slew of left-leaning economists, disagree with Powell’s view.

The Fed is aiming to fight inflation by reducing demand, which should lead to lower prices. But prices for many essential goods and services — such as food, energy and shelter — have been driven up by supply constraints, which the Fed cannot improve.

Powell has ceded that the Fed has no control over supply-driven inflation, but must do all it can to bring it down despite the consequences the economy could face. The Democrats argued his admission of the Fed’s limitations without a willingness to change course could unnecessarily doom millions of Americans to unemployment.

“Nevertheless, you continue to double down on your commitment to ‘act aggressively’ with interest rate hikes and ‘keep at it until it’s done,’ even if ‘[n]o one knows whether this process will lead to a recession or if so, how significant that recession would be,’” the Democratic lawmakers wrote, quoting Powell’s press conference in September.

The Democratic lawmakers asked Powell to estimate how many Americans would lose their jobs if the U.S. unemployment rate rose to three different levels by the end of 2023: the 4.4 percent median estimate of Fed officials in September; the 5 percent rate projected by one Fed official in September, which was the highest rate projected by an FOMC member; and the 5.6 percent jobless rate projected by a forecaster at Bank of America.

They also asked Powell to break down each group of unemployed Americans by wage quartile, race, sex, educational attainment and sector of employment.

The Monday letter is the latest instance of Democrats and other major political forces on the left pressuring Powell to slow down the Fed’s fight against inflation. Top Democratic lawmakers and labor organizations have expressed concerns about the Fed’s commitment to fighting inflation at the expense of the labor market.

Republican lawmakers have largely blamed the snag on the Biden administration and Democrats, who they claim overheated the economy and forced the Fed to spur a recession thanks to a 2021 fiscal stimulus package. Economists generally agree the stimulus package was but one of several factors behind high inflation and is not the main reason for higher price growth.