A coalition of Democratic lawmakers on Tuesday raised concerns about the Federal Reserve’s aggressive interest rate hike campaign, warning of impending job losses due to monetary policy tightening.
In a letter to Fed Chairman Jerome Powell, 10 Democrats warned the U.S. central bank of potential consequences for the labor market as policymakers try to slow the economy and crush runaway inflation which is still hovering around a 40-year high.
“We are writing to express our concern and request additional information about the implications of the Federal Reserve’s (Fed) most recent economic projections, its intention to continue raising interest rates at an alarming rate, and your ominous warning to American families that they should expect ‘pain’ over the next few months,” the lawmakers said in the letter.
It was signed by Sens. Elizabeth Warren, D-Mass., Bernie Sanders, I-Vt., Sheldon Whitehouse, DR.I., and Jeff Merkley, D-Ore., along with Reps. Rashida Tlaib, D-Mich. , Katie Porter, D-Calif., Madeleine Dean, D-Penn., Jesús García, D-Ill., Stephen Lynch, D-Mass., and Sylvia Garcia, D-Texas.
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Fed policymakers have already approved five consecutive rate hikes, including three consecutive 75 basis point hikes, and have shown no signs of slowing. At their last meeting in September, officials laid out an aggressive rate hike path that would put the target federal funds rate well into restrictive territory by the end of the year.
Central bankers are expected to approve a fourth straight increase of 75 basis points after their two-day meeting on Wednesday.
Powell has previously conceded that higher rates could “lead to higher unemployment”, and stressed that it is imperative for the central bank to rein in inflation, even if it comes at the cost of higher unemployment.
“We think we need to have looser conditions in the labor market,” Powell told reporters in September. “And if we want to set ourselves up to pave the way for another period of very strong labor markets, we have to put inflation behind us. I wish there was a painless way to do that. ‘there is not any.”
Updated projections from the Fed meeting showed unemployment to hit 4.4% by the end of next year, up from the current rate of 3.7%. That’s significantly higher than in June, when policymakers saw the jobless rate climb to 3.7%.
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This could mean around 1 million Americans will lose their jobs by the end of 2023. Other analyses, including one from Deutsche Bank, show unemployment has soared to 6% following the hikes Fed rate.
Democrats accused the Fed and Powell of acting with “an apparent disregard for the livelihoods of millions of working Americans.”
“We are deeply concerned that your interest rate hikes may slow the economy while failing to slow the rising prices that continue to hurt families,” they wrote.
For months, the job market remained one of the few bright spots in the economy, with the economy adding more than 2 million jobs in the first half of the year. Additionally, the government announced on Tuesday that job vacancies had climbed to 10.7 million, meaning there are about two jobs available per worker.
However, there are signs the labor market is beginning to weaken, with a plethora of companies including Alphabet’s Google, Walmart, Apple, Meta and Microsoft announcing hiring freezes or layoffs.
Rising interest rates tend to create higher rates on consumer and business loans, which slow down the economy forcing employers to cut costs.
Economists largely agree that the risks of a recession have increased significantly this year and that it will be increasingly difficult to avoid a slowdown in the near future as the The Fed is tightening its monetary policy.
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Powell himself apparently acknowledged in September that a “soft landing,” the middle ground between curbing inflation without crushing growth, looks increasingly unlikely.
“The chances of a soft landing are likely to diminish to the extent that the policy needs to be more restrictive, or restrictive for longer,” Powell said. “Nevertheless, we are committed to bringing inflation down to 2%. We believe that a failure to restore price stability would cause much greater pain.”
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