Federal Reserve Chair Jerome Powell warned Tuesday that the central bank is prepared to raise interest rates more aggressively in an effort to slow the economy and tame unexpectedly persistent inflation.
“As I mentioned, the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” he told the Senate banking committee as part of a twice-yearly testimony on the Fed’s monetary policy.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he continued.
In an effort to curb inflation, the Federal Reserve raised interest rates eight times between March 2022 and January. The central bank had hoped those hikes were finally doing the trick, as rate-sensitive sectors of the economy, such as housing, have been slowing, and the last hike was only one-quarter of a percentage point.
With Powell’s remarks raising the specter of bigger and faster hikes ahead, senators said he risked driving up unemployment from the 53-year low of 3.4% seen in January.
“You’re trying to raise the unemployment rate, are you not?”
- Sen. John Kennedy (R-La.)
“Let’s be clear what we’re talking about when [we] use the economic-speak that can cloud this conversation: ‘Cooling’ the economy means laying off workers. ‘Lowering demand’ means workers getting fewer raises,” said Sen. Sherrod Brown (D-Ohio), chair of the banking committee.
The 3.4% unemployment rate “means Americans have more opportunity and options, even in places that haven’t seen a lot of that in recent years,” Brown said. “It means people have the power to demand raises, and retirement security, and paid sick days, and control over their schedules.”
Sen. John Kennedy (R-La.) also pressed Powell to spell out the potential costs of being too aggressive with rate hikes.
“You’re trying to raise the unemployment rate, are you not?” he asked.
“We’re trying to realign supply and demand, which could happen through a bunch of channels,” Powell said.
Although Powell said government spending was not currently “a big factor” driving inflation, Kennedy accused Powell of trying to avoid saying cuts in spending were needed to help make the Fed’s inflation-fighting job easier.
“I get that you don’t want to get in the middle of that fight, but the more we help on the fiscal side, the fewer people you’re going to have to put out of work. Isn’t that a fact?” Kennedy asked.
“It could work out that way,” Powell replied.
A poll released Monday by Groundwork Collaborative, a group of progressive economic experts, found 56% of voters want the Fed to stop raising rates, with 54% of respondents saying the rate hikes should stop even if that meant prices would remain higher for a longer period of time.
“People understand that pushing millions of workers out of a job is a terrible way to address inflation and will do nothing to address root causes of inflation like supply-chain interruptions, the war in Ukraine, and big corporations manipulating the market to increase profits,” said Rakeen Mabud, Groundwork’s chief economist. “And they want a Federal Reserve that prioritizes workers and families, not Wall Street and big business.”