May 02, 2023

Warren, Boyle, Jayapal, Lawmakers to Fed Chair Powell: Pause Rate Hikes or Risk Recession, Destroying Jobs, Crushing Small Businesses

“Continuing to raise interest rates would be an abandonment of the Fed’s dual mandate to achieve both maximum employment and price stability and shows little regard for the small businesses and working families that will get caught in the wreckage.”

Text of Letter (PDF)

Washington, D.C. – U.S. Senators Elizabeth Warren, Chair of the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, Sheldon Whitehouse (D-R.I.), Bernie Sanders (I-Vt.) and U.S. Representatives Brendan Boyle (D-Pa.), Ranking Member of the House Budget Committee, Pramila Jayapal (D-Wash.), Chair of the Congressional Progressive Caucus, Jerrold Nadler (D-N.Y.), Jamaal Bowman (D-N.Y.), Jan Schakowsky (D-Ill.), Katie Porter (D-Calif.), and Greg Casar (D-Tex.) sent a letter to Federal Reserve (Fed) Jerome Powell ahead of the Federal Open Market Committee's (FOMC) May 2-3 meeting, calling on the Fed to pause interest rate hikes and respect its dual mandate of maximum employment and price stability, particularly in the wake of recent turmoil in the banking system following the collapses of Silicon Valley Bank, Signature Bank, and  First Republic Bank. The lawmakers expressed serious concerns that the Fed’s monetary policy strategy of more rate hikes could trigger a recession, throw millions out of work, and crush small businesses. 

“We remain deeply concerned that the Fed risks throwing millions of Americans out of work in its drive to raise interest rates even higher – even as Fed staff have already projected a recession this year amid financial market headwinds and even as you have acknowledged that inflation can slow without destroying the labor market, that the most significant drivers of inflation are not demand-based, and that the economy has not yet experienced the full impact of its earlier rate increases,” wrote the lawmakers. “The Fed should pause its rate hikes at the upcoming FOMC policy meeting.” 

On March 22, the FOMC announced it would raise its target range for the federal funds rate for the ninth-consecutive time in a year – continuing the most extreme rate-hiking cycle in 40 years – pushing the Fed funds rate to a 15-year high. The FOMC’s updated Summary of Economic Projections indicated that the Fed is expecting to continue raising the funds rate this year up to 5.1%. 

Chair Powell acknowledged that the fallout from the Silicon Valley Bank and Signature bank failures would likely “result in some tightening credit conditions for households and businesses and thereby weigh on demand, on the labor market, and on inflation. Such a tightening in financial conditions would work in the same direction as rate tightening. In principle, as a matter of fact, you can think of it as being the equivalent of a rate hike or perhaps more than that.” 

In the letter, the lawmakers note that recent economic data on prices and employment suggests that additional rate hikes are unnecessary. Inflation over the past six months has averaged just 3.6 percent at an annualized rate, compared to 6.4 percent for the previous six months, and wage growth has slowed to 3.2 percent over the last three months, widely recognized to be consistent with the 2-percent inflation witnessed pre-pandemic. 

The lawmakers warned against Chair Powell’s belief that the Fed can engineer a small rise in the unemployment rate – laying out the serious risks of recession, millions of jobs lost, and small businesses crushed. “History casts doubt on the Fed’s ability to engineer an unemployment rate that just ‘rise(s) a bit.’ The FOMC’s March forecast shows that the Fed seeks to drive the unemployment rate up by a percentage point this year, from 3.5% in March to 4.5%. But analysts note that since World War II, the unemployment rate has never increased by one percentage point within a year outside of a recession: the unemployment rate has increased by one percentage point 12 times since 1945, and in all 12 times that increase has been in the context of a recession. And every time the unemployment rate increased by a full percentage point, it continued to increase far beyond that level,” the lawmakers wrote. 

Given these serious concerns, the lawmakers are calling on the Fed to seriously consider the consequences to the economy, jobs, and small businesses if it continues to raise interest rates, not to lose sight of its dual mandate, and pause rate hikes at its upcoming FOMC policy meeting. They are asking the Fed to respond to a series of questions by May 15, 2023 about its projections on how many millions of jobs might be lost if future rate hikes are pursued. 

Senator Warren has been ringing the alarm bells about the serious dangers of Chair Powell’s continued interest rate hikes: 

  • In March 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren questions Chair Powell on the Fed’s monetary policy plan and its projection that the unemployment rate will rise sharply to 4.6% – more than a percentage point higher than it is today – by the end of the year if the Fed continues to raise interest rates. Senator Warren highlighted that the Fed’s projections suggest that nearly 2 million people will lose their jobs, and that history shows that the Fed has a poor track record of containing moderate increases in unemployment.
  • In November 2022, Senator Warren and Representative Madeleine Dean (D-Pa.) led their colleagues in sending a letter to Chair Powell, expressing concern and seeking answers about the Fed’s most recent economic projections, its intentions to continue to raise interest rates at a rapid pace, and its disturbing warning to American families that they should expect “pain” in the coming months. 
  • In July 2022, Senator Warren published an op-ed in the Wall Street Journal warning that the Fed’s decision to aggressively raise interest rates risks triggering a devastating recession.
  • In June 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called out Chair Powell for the Fed’s announced interest rate increases that wouldn’t address the key drivers of inflation. Chair Powell confirmed that the Fed’s interest rate increases will not bring down gas and food prices, two of the biggest drivers of inflation.