Elizabeth Warren: The Federal Reserve Is Trying ‘To Get More People Fired’

Elizabeth Warren: The Federal Reserve Is Trying ‘To Get More People Fired’

WASHINGTON — The Federal Reserve is coming under increasing political pressure to stop raising interest rates as aggressively as it has done so this year.

Federal Reserve chair Jerome Powell announced another rate hike Wednesday as Democrats worry Powell’s monetary policy will cause a recession.

“He’s pushing hard to get more people fired because he thinks that is one way to help bring down inflation,” Sen. Elizabeth Warren (D-Mass.) told HuffPost on Wednesday. “But it’s sure painful for the families who lose their jobs.”

The Fed fights inflation through interest rate hikes that make money more expensive to borrow, resulting in people having less to spend, forcing companies to lower their prices to attract cash-strapped consumers.

The problem is that if spending slows too much, businesses will lay people off, creating a self-perpetuating negative cycle known as a recession. The process trades the shared burden of higher prices for mass layoffs that mostly affect lower-income families.

Powell has openly admitted that there’s no way to tell in real time when the Fed has pushed too hard.

The Fed raised rates by a half percentage point on Wednesday, a slightly smaller increase than the three-quarter-percent increases the central bank announced several times earlier this year. But the members of the Fed’s board of governors said they think they’ll ultimately have to raise rates higher than previously expected.

So far, higher interest rates have crushed home sales, which are highly sensitive to borrowing costs, but had apparently no effect on the labor market. The unemployment rate remained 3.7% in November, which is historically low.

In new projections published Wednesday, the Fed’s decision-makers said they expect unemployment to rise to 4.6% next year, which could represent a recessionary amount of job losses.

Powell said that the projected increase in unemployment would not necessarily indicate a recession, but declined to say whether he thought higher unemployment would result more from job losses or just less employer demand for workers.

Some measurements of inflation, meanwhile, have begun to suggest that price pressures are moderating. The consumer price index showed prices rose 7.1% in November compared to the previous year ― still historically high but down from 7.7% in October and 8.2% in September.

Powell described the current strength of the labor market as an obstacle to reducing inflation on Wednesday.

“Job growth is very high, wages are very high, vacancies are quite elevated and really there’s an imbalance in the labor market between supply and demand,” Powell told reporters. “So that part of it, which is the biggest part, is likely to take a substantial period to get down.”

The Fed can’t do anything about supply problems caused by the pandemic or the war in Ukraine, as Powell has repeatedly admitted. The only thing the Fed can affect through interest rates is aggregate demand in the economy, and it will take an unknown number of months for consumers to feel the impact.

At a hearing earlier this year, Warren questioned Powell about whether higher interest rates would reduce prices for food or fuel, and he said they would not.

“The chairman of the Fed has admitted to me in a hearing that those rate hikes will not affect the price of groceries, will not bring down the cost of energy, because of the other forces that have driven up prices,” Warren said. “The moderation in inflation is one more reminder that we need a lot of data about where prices are moving, and we need it over a longer period of time before the Fed hauls off and takes yet again extremist actions to raise interest rates.”

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