Democrats slam ‘dangerous’ Fed rate hikes, warning of widespread job losses

A coalition of Democratic lawmakers on Tuesday raised concerns about the Federal Reserve’s aggressive interest-rate campaign, warning of impending job losses as a result of the tighter monetary policy.

In a letter addressed to Fed Chairman Jerome Powell, 10 Democrats warned the US central bank about possible consequences for the labor market, when policy makers try to slow down the economy and crush the runaway inflation, which is still close to a 40-year high.

“We are writing to express concern and request additional information regarding the implications of the Federal Reserve’s (Fed)’s latest economic projections, its intent to continue raising interest rates at an alarming rate, and your disturbing warning to American families that they should Expect pain in the coming months,” the lawmaker said in the letter.

It was signed by Sens. Elizabeth Warren, D-Mass., Bernie Sanders, I-Vt., Sheldon Whitehouse, D-Y., 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 back-to-back 75-basis point increases, and have shown no signs of slowing down. At their last meeting in September, officials laid out an aggressive rate-hike trajectory that would put the federal funds target rate well into restrictive territory by the end of the year.

The central bankers are expected to approve a fourth straight 75 basis-point increase at the conclusion of their two-day meeting on Wednesday.

Powell has already admitted that higher rates could “increase unemployment”, and emphasized that it is imperative that the central bank keep inflation down, even if it is at the cost of higher unemployment.

“We think we need to have softer labor market conditions,” Powell told reporters in September. “And if we want to really light the way to another period of a very strong labor market, we have to get inflation behind us. I wish there was a painless way to do it. There isn’t.”

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Updated projections from the Fed’s meeting showed unemployment rising to 4.4% by the end of next year, up from the current rate of 3.7%. That’s significantly higher than June when policymakers saw the jobless rate increase to 3.7%.

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This could mean that approximately 1 million Americans lose their jobs between now and the end of 2023. Other analyzes – including one from Deutsche Bank – show unemployment climbing as high as 6% as a result of the Fed’s rate hikes.

Federal Reserve Chairman Jerome Powell

Jerome Powell, chairman of the US (Photo: Sarah Silbiger/Bloomberg via Getty Images/Getty Images)

The Democrats accused the Fed, and Powell, of acting with “a demonstrable injustice to the livelihoods of millions of working Americans.”

“We are deeply concerned that your interest rate hikes risk slowing the economy to a crawl while failing to slow rising prices that continue to hurt families,” they wrote.

For months, the labor market has 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. In addition, the government reported on Tuesday that job openings climbed to 10.7 million – meaning there are roughly two available jobs per worker.

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However, there are signs that 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.

Hiking interest rates tends to create higher rates on consumer and business loans, which Slows the economy By forcing employers to cut spending.

US  it.  inflation

A customer shops at a supermarket in Washington, DC, the United States, on July 13, 2022. ((Photo by Ting Shen/Xinhua via Getty Images)/Getty Images)

Economists widely agree the risks of a recession have risen significantly this year and that avoiding a downturn in the near future will be increasingly difficult as the Fed tightens monetary policy.

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Powell seemingly acknowledged in September that a “soft landing,” the sweet spot between taming inflation without crushing growth, looks increasingly unlikely.

“The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive, or restrictive for more,” Powell said. “However, we are committed to getting inflation back to 2%. We think a failure to restore price stability would mean much greater pain.”

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