To stop blazing inflation, Federal Reserve Chair Jerome Powell is applying the brakes to the American economy more forcefully than any Fed boss in more than 40 years.
Although a recent poll indicates that Americans are evenly divided on his efforts, Democrats in Congress have received little public criticism, despite the fact that they stand to lose the most politically if rising interest rates cause the country to enter a recession.
Powell’s campaign to stop inflation was largely met with resignation and a word of warning by House and Senate Democrats, according to interviews with influential politicians on Capitol Hill. With a few notable exceptions, like Sen. Elizabeth Warren, who blasted Powell as “reckless and irresponsible” for jeopardising the jobs of millions of employees, few have been ready to criticise him—including in numerous hearings.
When asked if he was concerned that Powell would raise rates too high, Senate Banking Chair Sherrod Brown (D-Ohio), a progressive Warren friend on many issues, replied to HEADLINESFOREVER, “I don’t have a lot of ideas on what the Fed does.” Brown, whose committee is in charge of the Fed, said, “We have no authority over that.”
The extraordinary bipartisan support Powell has received—many Republicans support his policies—is a result of the years he has spent building relationships on Capitol Hill and a recognition that price increases are also a significant political liability that lawmakers are ill-equipped to handle on their own.
If the economy experiences a downturn as many pundits predict, this widespread support for his objective would not persist indefinitely.
Former Federal Reserve Vice Chair Donald Kohn observed, “The agony of inflation is there and always present; the pain of unemployment is in the future.” “I predict that there will be more fallout as the unemployment rate increases and as businesses start to do a little less hiring and more firing. However, that has not yet occurred.
Officials at the central bank increased the benchmark federal funds rate by an astounding 3 percentage points in just six months, which caused a spike in mortgage rates, bond yields, and stock prices.
The job market has not yet been significantly cooled by the current tighter financial circumstances, which has benefited Democrats in an otherwise struggling economy. With political cover now provided by this, Powell and his colleagues may move on with rate rises that they believe are necessary to stop inflation before it becomes entrenched.
Despite a slowdown in monthly job growth, the report released on Friday revealed that businesses still added 263,000 positions in September, and the unemployment rate remained at 3.5 percent, close to a 50-year low.
Sen. Chris Van Hollen (D-Md.) said of Fed officials in an interview, “It’s critically crucial that they not choke off the job recovery.” “We want people to be able to find work and earn high earnings in the future. As a result, there is always a razor’s edge.
He continued, “So far, they’ve been successful.”
Brown suggested that Congress should continue to concentrate on what it can do to help reduce price pressures since it has a role to play in this conflict as well. He claimed that corporate profiteering has made such pressures worse, a fact that Warren and other progressives have also emphasised.
However, despite Powell’s efforts, inflation has hardly changed from its high levels and has penetrated more deeply into sectors like housing and healthcare. When food and energy prices are taken out, consumer prices increased significantly from the previous month in August but decreased from a year earlier to 8.3 percent. On Thursday, the Labor Department will present revised data.
Officials at the Fed have therefore projected even higher rates for this year and the following year. According to their most current predictions, which also indicated weaker growth and increased unemployment, they now expect the fed-funds rate to reach 4.4 percent by the end of the year and 4.6 percent at the end of 2023.
The likelihood of a recession, which may cause layoffs and severely slow U.S. growth, has increased as a result of this prognosis, according to experts.
At a press conference that followed the Fed’s policy meeting last month, Powell acknowledged the risks. “We have always anticipated that obtaining a relatively moderate increase in unemployment and a soft landing while ensuring price stability would be quite tough,” he said. But he promised to persist until inflation is in check.
Wall Street and progressive groups concerned that the central bank will overcompensate, hiking rates too high and precipitating a severe downturn have increased their concern and scrutiny as a result of his commitment to continue the course. Earlier this month, Rep. Ro Khanna (D-Calif.) denounced the Fed chairman’s “failed policy” and accused him of allowing inflation to soar in the first place.
But besides a small group of progressive lawmakers, most Democrats have remained silent.
Many people acknowledged Powell’s predicament as challenging.
Sen. Tina Smith (D-Minn.), echoing Warren, said, “The Fed has this one tool, which is hiking rates, and it’s not a tool that is actually all that useful for some of the most substantial inflationary pressures that we’re seeing.” Having said that, I believe they must decide how to employ the only available tool to stop the inflationary spiral, which is in part fueled by societal expectations.