Progressive Democrats are ripping the Federal Reserve over deepening concerns the central bank could drive the U.S. into recession amid sky-high inflation not seen in four decades.
Top liberal lawmakers are urging the Fed to stop hiking interest rates and slowing the U.S. economy, insisting that it’ll do nothing to curb inflation while plunging millions into joblessness.
“I think they’re hurting the situation,” Sen. Bernie Sanders (I-Vt.), the chairman of the Senate Budget Committee, said Sunday on NBC’s “Meet the Press,” referring to the Fed’s rate hike campaign.
“I think it is wrong to be saying the way we deal with inflation is by lowering wages and increasing unemployment. That is not what we should be doing,” he continued.
The Fed in March began a series of rapid increases to its baseline interest rate range, which controls borrowing costs throughout the economy.
The Fed aims to slow inflation by raising interest rates and reducing the amount of money households and businesses have to spend. Less spending in the economy should force businesses to lower their prices to compensate for slower sales, but also push them to hire fewer employees and at lower wages.
Fed officials are hopeful they can raise rates high enough to bring inflation down from an annual rate of 8.1 percent in September without serious damage to the economy. But Fed Chairman Jerome Powell, who was appointed by former President Trump, warned that inflation is far too high to come down without “pain,” dashing hopes for a “soft landing” where Americans keep their jobs.
Members of the Fed panel responsible for interest rate hikes see the jobless rate rising to 4.4 percent by the end of 2023, nearly 1 percentage point higher than the September jobless rate of 3.5 percent. While a 4.4 percent unemployment rate is low compared to previous decades, it would mean more than 1 million Americans would lose their jobs over the next 15 months.
“We are going to keep raising rates for a while,” said Patrick Harker, president of the Federal Reserve Bank of Philadelphia, in a Thursday speech.
“Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year,” he continued, referring to the Fed’s baseline interest range, which is currently set at 3 to 3.25 percent.
Concerns about the economy, and more specifically the cost of living, are top of mind for voters three weeks away from the 2022 midterm elections. High inflation and recession fears are likely to cost Democrats their majority in the House and could also give Republicans control of the Senate, derailing President Biden’s domestic agenda.
Higher Fed interest rates may also ratchet up the pressure felt by American families. And while a recession is unlikely to begin this year, Democrats are blasting the Fed for pushing the U.S. closer to a downturn.
“Chair Powell told the Senate Banking Committee that interest rate hikes won’t lower food or gas prices, but he has said it will bring ‘pain’ to working people. I’ve been ringing the alarm about these extreme rate hikes, and so have a broad coalition of economists from Paul Krugman to Greg Mankiw. Throwing millions of Americans out of work is not the solution to fight inflation,” said Sen. Elizabeth Warren (D-Mass.) in a Thursday statement.
The looming midterm elections are forcing Democrats to reckon with voters’ concerns about the economy. But the backlash from Warren and Sanders — both of whom opposed Biden’s renomination of Powell — also comes amid deepening fears among experts.
The full impact of Fed interest rate movements can take months or even years to show up in the economy, which is already slowing under the weight of high prices and other global headwinds.
Rate hikes are also pushing the global economy toward a sharper downturn, with Europe likely already in recession and developing nations still far behind in the recoveries from the COVID-19 pandemic.
“The Fed now has few choices but to make everything worse,” said Karen Shaw Petrou, managing partner of research firm Federal Financial Analytics, in a Thursday interview.
Experts fear that a global economic downturn could help push the U.S. deeper into its own recession, especially if the Fed takes further steps to slow down hiring and wage growth.
Fifty-five percent of economists believe the Fed raising interest rates too high is the greatest risk to the U.S. economy in 2023, according to a poll conducted by the National Association for Business Economics, a research group. And 75 percent of the group said the Fed only has a coin flip’s chance at best of beating inflation without causing a recession.
The higher risks are fueling more criticism from Democrats, particularly those long suspicious of the Fed’s commitment beyond Wall Street.
“This inflation thing is a real issue. It is a global issue. But at a time when working families are struggling and the people on top are doing phenomenally well … you don’t go after working people,” Sanders said Sunday.
Even so, pinning the blame on the Fed may yield little electoral success for Democrats.
“Democrats, I think, far too often talk about the economy in an esoteric way,” said Michael Hopkins, a Democratic strategist, in a Thursday interview.
“Focusing on the Fed and on the actual statistics themselves as the basis for your argument is too wonkish. The average American does not understand how inflation works, does not understand how the Fed works, or even who’s in charge,” he continued.
Instead, Hopkins suggested, Democrats should focus on sharing the personal stories of Americans helped by other aspects of the economy and Biden’s agenda.
Under Biden, the U.S. has added more than 10 million jobs and an average of 420,000 each month since the start of 2022. The president and Democrats also took action to cut medical care and prescription drug costs, expand affordable internet access, raise taxes on corporations and tap the Strategic Petroleum Reserve to buffet rising gas prices.
“There is a narrative to be told. But it’s got to be a complete story.”
Updated at 10:55 a.m.