Democrats are growing loud in their suggestion to Federal Reserve Chair Jerome Powell concerning the Fed’s upcoming interest rate hike decision: just say no.
Powell’s Fed, which will vote Wednesday on whether to raise rates for the ninth time in a row, has been chastised by progressives for months for putting American employment at risk in the fight against inflation.
Such calls have become louder in the aftermath of the failures of Silicon Valley Bank and another regional institution. Opponents warn that future rate increases will exacerbate financial instability and endanger GDP at a time when experts are already predicting a recession this year.
“Under his watch, we have witnessed a succession of bank failures, deregulatory measures, and irresponsible interest rate hikes that have all threatened to undermine our economic recovery and make our financial system less safe,” House Financial Services Committee member Rep. Ayanna Pressley (D-Mass.) told AWN. “Despite the prospect of millions of job losses and the disparate impact on our most vulnerable, he has so far refused to suspend interest rate hikes.”
Senators Sherrod Brown (D-Ohio) and Mark Warner (D-Va.), both members of the Senate Banking Committee, are among those calling for a pause to rate hikes.
Powell, the leader of the world’s most powerful central bank, has received bipartisan support. While such support is not in jeopardy right now, the combination of the worst inflation in four decades — which astonished even the Fed — and the confidence-shaking bank failures under Powell could spell difficulty in the future. They might make future Fed moves more scrutinised and diminish the central bank’s independence.
Sen. Elizabeth Warren (D-Mass. ), who voted against his reappointment last May, has seized on the banking upheaval as proof of what she has long argued: the Fed has raised interest rates too quickly and too high.
“He’s had two jobs,” she claimed on NBC’s “Meet the Press,” one of her Sunday talk show appearances. “He failed in both.”
Warner, who characterised himself as “usually favourable to the Fed,” said the banking troubles should cause the central bank to take a pause. “I do believe a pause would be acceptable in the sense that you’re attempting to decelerate the economy,” said the Virginia lawmaker in an interview. “This banking issue is clearly slowing the economy.”
Yet, Powell’s support has endured despite a remarkable period of struggle, including constant attacks by then-President Donald Trump, a once-in-a-century pandemic, and galloping inflation. He also survived a central bank conflict-of-interest controversy that led three top officials, including his deputy, to leave.
Powell has made a point of meeting with members of Congress on Capitol Hill on a regular basis throughout his tenure, and some Fed observers expect him to weather this storm as well, even though lawmakers may feel compelled to express their fury.
“Many MPs will question and criticise Powell since he is in the spotlight and an easy target,” said TD Cowen managing director Jaret Seiberg. “It means going after him for taking too long to hike interest rates and for failing to recognise problems at Silicon Valley Bank.” Yet, I believe he retains widespread popularity since he took immediate action to end the issue. Yet he looks to be lowering inflation without causing a severe recession.”
Keeping inflation under control without precipitating a sudden downturn, on the other hand, may become more difficult in the future. Investors broadly expect the Fed to raise interest rates by a quarter of a percentage point — a small, standard-sized rise — though it’s still possible that officials may refrain from raising borrowing costs this week as they examine the implications from SVB’s failure.
“Increasing interest rates may cause potential hardship, but the American people are already feeling the burden of inflation,” stated Sen. Thom Tillis (R-NC). “He has to strike a balance between the two.”
Last weekend, Swiss regulators mediated the acquisition of troubled Credit Suisse by its banking rival, UBS, raising concerns about further financial industry hardship. Banks are likely to lend less freely in the aftermath of these events, putting the brakes on economic development, as the Fed is attempting to do.
Yet, stopping rate hikes may have its own set of issues, particularly because it may make it more difficult for the Fed to continue — even if inflation remains high. And it might send a signal to markets that the central bank sees trouble ahead, adding to an already tense scenario.
“I’m not sure a pause is comforting at this point,” former Fed Vice Chair Roger Ferguson remarked on CNBC on Tuesday.
Senator Jon Tester (D-Mont.) said the Fed should avoid partisan rhetoric and “perform the best job they can.”
“It’s a great error to base money policy on elected U.S. senators,” he said in an interview.
Powell will have to navigate all of those opposing views at his news conference, slated for 2:30 p.m. Wednesday, where Fed officials will no certainly want to foster a feeling of calm and stability.
Powell sent a message to Congress before of the central bank’s pre-meeting “blackout,” in which policymakers do not discuss interest rates for a week and a half before a decision.
“The repercussions of failing to restore price stability would be extraordinarily high,” he testified before the House Financial Services Committee. “And, while there will be expenses associated with success, the cost of failure will be far greater.”
