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Mar 22, 2023
Democrats Say Fed Risks Economic Harm, Showing Unease With Hikes
(Bloomberg) -- The Federal Reserve’s latest rate increase drew rebukes from Senator Elizabeth Warren, Senate Majority Leader Chuck Schumer and a senior House Democrat on Wednesday, showing the party’s anxiety about a potential recession before the 2024 presidential election.
“The Fed under Chair Powell made a mistake not pausing its extreme interest rate hikes,” Warren said in a tweet, after the Fed bumped its benchmark rate a quarter-point and indicated further tightening was possible.
“I’m concerned about its effect on the economy,” Schumer said of the latest increase.
Representative Brendan Boyle of Pennsylvania, the senior Democrat on the House Budget Committee, warned that “raising rates too high and too fast — especially in this moment — could jeopardize the record recovery Americans have enjoyed under President Biden.”
Read more: Powell Stresses Commitment to Cooling Prices as Fed Hikes Rates
In a statement, he cited the “precarious state of our financial system and market volatility,” a reference to the banking crisis that’s consumed markets and governments around the world for the past two weeks.
Lawmakers of both parties are typically reticent to criticize the Fed, recognizing that the central bank’s independence from politics is crucial to its credibility. There have been exceptions, notably President Donald Trump — who never shied from publicly telling the Fed what he thought it should do — and Warren, the Massachusetts liberal who had already criticized Fed rate increases.
White House Press Secretary Karine Jean-Pierre said Wednesday that she wouldn’t comment on the Fed’s decision.
“We want to make sure, the president wants to make sure, that we give them the space, give the Fed the space needed to make their decisions on monetary policy,” she said.
Boyle’s tone has shifted since January, when he issued a statement calling the Fed’s quarter-point increase that month “a notable slowdown in the pace of the Fed’s interest rate hikes” and an “encouraging sign that a soft landing is within reach.”
Read more: Warren, Florida’s Scott Want New Watchdog Post at Fed After SVB
“I know many share my concern that raising rates too high and too fast could endanger the record job growth we’ve enjoyed under the leadership of President Biden and congressional Democrats,” he said at the time.
Fed Chair Jerome Powell said in a news conference Wednesday that the Open Markets Committee had considered a pause but unanimously agreed on the need for another hike because of persistent escalated inflation.
“We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so,” he said.
Boyle also said in his statement that the Fed “must not forget its dual mandate” to aim for full employment, in addition to keeping inflation low.
Republicans were largely silent on the Fed’s latest move, instead assailing Democrats for policies they said had forced the central bank’s hand.
“Families are continuing to feel the consequences of the Democrats’ inflation crisis,” House Ways and Means Chairman Jason Smith said in an e-mailed statement that began, “Recession warning signs are flashing.”
“Higher interest rates means more Americans unable to buy a home, small businesses that can’t get a line of credit, and families buried in credit card debt they’ve taken on just to get through these last two years,” Smith added, without criticizing the Fed directly.
--With assistance from Justin Sink.
©2023 Bloomberg L.P.
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