Federal Reserve Board Chair Jerome Powell holds a news conference after the Fed raised interest rates by a quarter of a percentage point following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, March 22, 2023.
Leah Millis | Reuters
WASHINGTON — A group led by several prominent Democratic lawmakers is calling on the Federal Reserve to halt rate hikes to avoid risking too much damage to the economy.
The 10 senators and representatives, led by Sen. Elizabeth Warren of Massachusetts and Reps. Pramila Jayapal of Washington and Brendan Boyle of Pennsylvania, raised their concerns about the Fed’s monetary policy strategy and its “potential to throw millions of Americans out of work,” in a letter Monday to Fed Chair Jerome Powell.
The letter was sent ahead of the Fed’s anticipated rate hike announcement Wednesday. It would be the 10th increase since last year, as the central bank has tried to tame inflation. Some expect the Fed to pause hikes after Wednesday.
The lawmakers called on the Fed to suspend rate hikes to “respect” its dual mandate and “avoid engineering a recession that destroys jobs and crushes small businesses.”
During a Feb. 1 press conference, Powell said he continues to think “that there’s a path to getting inflation back down to 2% without a really significant economic decline or a significant increase in unemployment,” though he also noted that most economic forecasters would predict an uptick.
“While we do not question the Fed’s policy independence, we believe that continuing to raise interest rates would be an abandonment of the Fed’s dual mandate to achieve both maximum employment and price stability and show little regard for the small businesses and working families that will get caught in the wreckage,” the lawmakers wrote.
Seven other senators and members of the House also signed the letter addressed to Powell.
The benchmark federal funds rate is the highest since 2007 after nine consecutive rate increases by the Fed since last year. The failures of Silicon Valley Bank and Signature Bank in March — combined with the “lagging impacts of the Fed’s earlier rate hikes” — have also left the U.S. economy “even more vulnerable to an overreaction by the Fed,” the lawmakers wrote.
They also cited the lowest year-over-year consumer price index in nine months, a resilient labor market and a 3.5% unemployment rate, including the lowest rate for Black Americans on record, as proof that further rate hikes are unnecessary.
Successive rate hikes would “needlessly” threaten that progress, they argued.
“While the Fed should remain flexible to incoming data as it assesses the economy’s progress toward achieving lower inflation, the evidence to date suggests that progress can continue to be made without slamming the brakes on the economy and costing millions of Americans their jobs,” the lawmakers wrote.
In order to gauge the Fed’s latest economic projections, the lawmakers requested a list of data points, including expected trends for wage growth and economic forecasts for the unemployment rate over the next year, by May 15.