The top Democrat on the Senate Banking Committee warned Federal Reserve Chair Jerome Powell on Tuesday not to push the U.S. economy into recession with overzealous interest rate hikes meant to fight inflation.
In a Tuesday letter to Powell, Sen. Sherrod Brown (D-Ohio) urged the Fed chief and his colleagues to “not lose sight of your responsibility” to protect a historically strong labor market.
“For working Americans who already feel the crush of inflation, job losses will make it much worse. We can’t risk the livelihoods of millions of Americans who can’t afford it,” wrote Brown, chairman of the Banking panel, in a Tuesday letter released by his office.
“I ask that you don’t forget your responsibility to promote maximum employment and that the decisions you make at the next … meeting reflect your commitment to the dual mandate,” he added.
Brown’s letter comes a week before the Federal Open Market Committee, the panel of Fed officials responsible for monetary policy, is set to meet in Washington, D.C., and issue another steep interest rate hike. Economists expect the Fed to boost its baseline interest rate range by another 0.75 percentage points, which would be the fifth hike of that size in consecutive meetings.
The Fed has rapidly boosted interest rates in a bid to slow the economy enough to bring inflation down from four-decade highs. As the Fed raises interest rates, households and businesses tend to reduce their spending, which slows the economy and tends to force prices down.
The Fed is obligated under federal law to seek both stable prices and maximum employment. Powell and other top officials have warned the Fed may be forced to boost unemployment in order to bring down prices and avert a deeper recession caused by inflation.
Fed officials expect the jobless rate to rise to 4.4 percent by the end of 2023, according to recent projections, which would mean more than 1 million Americans losing their jobs.
But top progressive lawmakers, including Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) have pushed back on the Fed’s willingness to push the U.S. into recession.
Brown did not explicitly call on the Fed to halt or slow down its rate hikes but expressed concerns that the bank may be moving too quickly to raise interest rates given how long it can take the full impact of increases to hit the economy.
He also warned Powell against using interest rates to tackle other sources of high inflation — including the war in Ukraine, lingering supply chain issues and steady corporate price increases in excess of rising costs.
“Monetary policy tools take time to reduce inflation by constraining demand until supply catches up – time that working-class families don’t have,” Brown wrote.
“We must avoid having our short-term advances and strong labor market overwhelmed by the consequences of aggressive monetary actions to decrease inflation, especially when the Fed’s actions do not address its main drivers,” he added.
Updated at 3:01 p.m.