He remains against the Federal Reserve on interest rate hikes
Progressive Democrats are tearing at the Federal Reserve amid growing concerns that the central bank could drag the United States into recession amid soaring inflation not seen in four decades.
Key liberal lawmakers are urging the Fed to stop raising interest rates and slowing the US economy, insisting it will do nothing to rein in inflation while pushing millions into unemployment.
“I think they’re hurting the situation,” Senator Bernie Sanders, chairman of the Senate Budget Committee, said on NBC’s “Meet the Press” on Sunday, referring to the Fed’s rate hike campaign.
“I think it’s wrong to say that the way we deal with inflation is to lower wages and raise unemployment. That’s not what we should be doing,” he continued.
The Fed began a series of rapid hikes in its base interest rate range in March, which controls borrowing costs across the economy.
The Fed aims to slow inflation by raising interest rates and reducing the amount of money households and businesses have to spend. Lower spending in the economy is expected to force businesses to lower prices to compensate for slower sales, but also push them to hire fewer employees and lower wages.
Fed officials hope they can raise rates high enough to bring inflation down from an annual rate of 8.1% in September without causing serious damage to the economy. But Fed Chairman Jerome Powell, appointed by former President Trump, warned that inflation was far too high to come down without “pain”, dashing hopes of a “soft landing” where Americans would keep their jobs.
Fed panel members responsible for interest rate hikes see the jobless rate climbing to 4.4% by the end of 2023, nearly a full percentage point higher than the jobless rate in 3.5% in September. While an unemployment rate of 4.4% is low compared to previous decades, it would mean more than a million Americans would lose their jobs over the next 15 months.
“We’re going to keep raising rates for a while,” Federal Reserve Bank of Philadelphia president Patrick Harker said in a statement. a thursday speech.
“Given our frankly disappointing lack of progress in reducing inflation, I expect we will be well above 4% by the end of the year,” he said. continued, referring to the Fed’s base interest range, which is currently set at 3-3.25%.
Worries about the economy, and specifically the cost of living, are top of mind for voters with three weeks to go before the 2022 midterm elections. Fears of high inflation and recession are likely to cost Democrats their majority in the House and could also give Republicans control of the Senate, derailing President Biden’s national agenda.
The Fed’s interest rate hike could also increase the pressure felt by American families. And while a recession is unlikely to start this year, Democrats blame the Fed for pushing the United States closer to a downturn.
“Chair Powell said the Fed’s rapid interest rate hikes would cause ‘pain’ for working families and even admitted they would not lower food or gas prices. Throwing Americans out of work with a recession is not the answer to fighting inflation,” Sen. Elizabeth Warren (D-Mass.) tweeted last week.
The looming midterm elections force Democrats to heed voter concerns about the economy. But the reaction from Warren and Sanders – who both opposed Biden’s renomination of Powell – also comes amid growing fears from pundits.
The full impact of Fed interest rate moves can take months or even years to show up in the economy, which is already slowing under the weight of high prices and other global headwinds.
The rate hikes are also pushing the global economy towards a steeper slowdown, with Europe likely already in recession and developing countries still far behind in the recovery from the COVID-19 pandemic.
“The Fed has little choice left but to make everything worse,” Karen Shaw Petrou, managing partner at research firm Federal Financial Analytics, said in an interview Thursday.
Experts worry that a global economic slowdown could help push the United States deeper into its own recession, especially if the Fed takes further steps to slow growth in hiring and wages.
According to a poll by the National Association for Business Economics (NABE), a research group, 55% of economists believe that too high an interest rate hike by the Fed is the biggest risk to the US economy in 2023. And 75% of the group said the Fed only had a chance at best of beating inflation without causing a recession.
These higher risks are fueling more criticism from Democrats, especially those who have long been wary of the Fed’s commitment to those beyond Wall Street.
“This inflation story is a real problem. It’s a global problem. But in a time when working families are struggling and people at the top are doing phenomenally well…you don’t pick on the workers” , Sanders said on Sunday.
Even so, blaming the Fed may give Democrats little electoral success.
“I think Democrats talk way too often about the economy in an esoteric way,” Michael Hopkins, a Democratic strategist, said in an interview Thursday.
“Focusing on the Fed and the statistics themselves as the basis of your argument is too flawed. The average American doesn’t understand how inflation works, doesn’t understand how the Fed works, or even who’s in charge,” he continued.
Instead, Hopkins suggested, Democrats should focus on sharing the personal stories of Americans aided by other aspects of the economy and Biden’s agenda.
Under Biden, the United States has created more than 10 million jobs and an average of 420,000 every month since the start of 2022. The president and Democrats have also taken steps to reduce medical and drug costs prescriptions, expand affordable internet access, raise corporate taxes and tap into the Strategic Petroleum Reserve to combat rising gas prices.
“There is a story to tell. But it has to be a complete story.