As inflation continues to rise, the Federal Reserve is expected to initiate another rate hike to stem this flight. Fearing a recession, Democratic senators are urging the Fed to tread carefully lest it trigger a recession as the economy pulls out of the COVID-19 pandemic.
The US Federal Open Market Committee (FOMC) is expected to conclude its meeting on Wednesday with the announcement of a new round of rate hikes. The government’s inflation data for June found that the consumer price index (CPI) had risen by 9.1%, while the producer price index had risen to 11.3%. These readings have fueled a sense that Fed Chair Jerome Powell will feel compelled to raise interest rates again.
Senate Democrats were not particularly convinced of the Fed’s dovish stance. Instead, they fear that aggressively lowering interest rates will do little to address other structural causes of the current inflation and push the economy closer to a recession.
Sen. Elizabeth Warren, D-Mass., captured those sentiments in a Wall Street Journal op-ed Monday. She accused Powell of ordering the Fed to “start a devastating recession.”
Warren, a longtime critic of Powell’s tenure as Fed chairman, said the central bank will do immense harm to millions of Americans if its actions lead to a recession.
“If the Fed cuts too much or too abruptly, the resulting recession will leave millions of people — disproportionately low-wage workers and people of color — with fewer paychecks or no paychecks at all,” Warren wrote.
Other Democrats have expressed concern that the Fed could trigger a recession if it hikes rates too quickly.
Senator Bernie Sanders, I-Vt., the chair of the Senate Budget Committee, said Tuesday he agreed with Warren’s assessment of the risks. Other senators expressed concerns that rising interest rates could further dampen demand for housing or make financing infrastructure projects more expensive.
“They have [The Fed] Gotta call how serious this is. I agree with her. If you overdo it, you could plunge yourself into a recession,” said Sen. Dick Durbin, D-Ill.
Powell has stated that the Fed’s intention is not to create a recession, but instead to conduct a “soft landing” that would result in a manageable economic slowdown and a fall in inflation. He did, however, concede that a recession is possible, and admitted before the Senate last month that rate hikes alone would not ease inflationary pressures from frayed supply chains or Russia’s war in Ukraine.
Adding to Democrat concerns is voter pessimism about the state of the economy ahead of November’s midterm elections. President Joe Biden’s handling of the economy has been rated poorly by voters and consumer confidence has continued to fall due to high inflation.
Republicans have made inflation a key campaign issue in their campaigns, blaming Democrats for causing the crisis. In her op-ed, Warren touched on these concerns indirectly, warning that a Republican-led Congress would only exacerbate the worst effects of a recession, should one happen.
“As in previous downturns, Congressional Republicans will push for austerity — tax cuts for giant corporations and the rich, weaker regulation for big business, and little economic support for the most vulnerable. Democrats should be prepared to reject the Republican playbook and be prepared to help working families survive,” Warren noted.
https://www.ibtimes.com.au/democrats-worry-feds-hawkishness-can-induce-recession-1835250?utm_source=Public&utm_medium=Feed&utm_campaign=Distribution Democrats fear Fed hawkishness could trigger recession