A House Democrat told Federal Reserve Chairman Jerome H. Powell on Wednesday that he is “engineering a recession” by raising interest rates to lower inflation, and demanded that the central bank pull back from future rate hikes.
Rep. Ayanna Pressley of Massachusetts, a member of the liberal “Squad,” twice asked Mr. Powell during a House Financial Services Committee hearing to halt his course of raising rates. She said the Fed is risking a recession because rate hikes generally lead to layoffs.
Mr. Powell rejected her assertion that a recession is inevitable and said the central bank must combat chronic price increases.
“We’re not seeking to have a recession, and we don’t think we need to have a recession to get …” he said before the lawmaker cut him off.
Ms. Pressley asked, “Will you pause interest rate hikes, yes or no?”
“I don’t do ‘yes or no’ on ’will I pause interest rate hikes,’” Mr. Powell replied. He testified that the Fed needs to raise rates higher than previously expected to curb inflation, which was running at 6.4% in January.
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The confrontation underscored the political quandary for Democrats on inflation that has soared during the Biden administration. Republicans blame Democrats’ multitrillion-dollar spending spree of the past two years for causing inflation to rise from 1.4% to 9.1% last summer.
“President Biden’s kowtowing to the far-left is what got us into this inflationary mess,” said Committee Chairman Patrick McHenry, North Carolina Republican. “Since President Biden took office, we have experienced inflation at rates not seen since the early 1980s. Inflation rapidly accelerated after Democrats passed their so-called American Rescue Plan Act, which poured nearly $2 trillion of inflation fuel into the economy. Instead of being ‘rescued’ by Democrats, Americans were punished with pain at the grocery store and sticker shock at the pump.”
He said inflation this year “remains broad-based and continues to hammer Americans’ pocketbooks.”
Democrats countered that inflation in the European Union is higher, at 8.6%. Mr. Powell said a “common factor” is that both economies have emerged from the pandemic, but he also said of the EU, “Their inflation looks a lot like ours did a year ago.”
To bring inflation down to its target rate of 2%, the Fed has raised its benchmark interest rate at the fastest pace in four decades, to about 4.6% — the highest in 15 years. The central bank is expected to announce another rate hike at its next meeting on March 22.
The rate increases are projected to raise the unemployment rate, now at a 54-year low of 3.4%, to 4.6% by the end of 2023. That translates into about 1 million lost jobs.
Rate hikes also typically make mortgages, auto loans, credit card rates and business lending more expensive.
Ms. Pressley told Mr. Powell that “engineering a recession to bring inflation under control is not the right strategy.”
“The people who will bear the brunt of an economic recession are our most vulnerable,” she said. The lawmaker asked Mr. Powell to explain the impact of the rate hikes on “communities, families and businesses.”
“Well, right now we’re trying to bring down inflation on behalf of all those families,” Mr. Powell told her. “High inflation is hurting particularly working families all around the country very badly. If you’re on a limited budget, and you don’t have a lot of excess earnings, when prices start going up, you’re in trouble right away.”
Ms. Pressley interrupted him again, bristling that the Fed’s strategy is “unconscionable.”
“The most devastating impacts will be to our most vulnerable — veterans, the elderly, low-income workers, Black and brown workers, those who have [been] ignored and been neglected in the name of what you refer to as ‘appropriate monetary policy,’” she told Mr. Powell. “Our most vulnerable workers and families cannot afford to wait for you to realize the harm that you are doing. In my opinion, this sounds more like the assertions of a greedy corporation than someone who has a public mission on behalf of the people of this country.”
Rep. Rashida Tlaib, another Squad member, accused the Fed of being “more obsessed with wages than they are in regards to the monopolies and the corporate profiteering.” The Michigan Democrat asked Mr. Powell why the Fed doesn’t crack down on “egregious” corporate executive salaries.
Mr. Powell replied, “We don’t do competition policy, and we also don’t, broadly speaking, regulate corporate wages.”
• Dave Boyer can be reached at dboyer@washingtontimes.com.
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