A group of Congressional lawmakers are calling on the Federal Reserve to pause interest rate hikes.
Last week, the Federal Reserve voted to raise interest rates by 25 basis points, the 10th straight rate hike, in an effort to lower inflation.
But the lawmakers said the Fed should pause hikes and respect its dual mandate of maximum employment and price stability, particularly amid a period of turmoil in the banking system as three banks — Silicon Valley Bank, Signature Bank, and First Republic Bank — have collapsed.
The lawmakers are concerned that the Fed’s strategy of raiding rates could trigger a recession, put people out of work, and hurt small businesses.
“We remain deeply concerned that the Fed risks throwing millions of Americans out of work in its drive to raise interest rates even higher – even as Fed staff have already projected a recession this year amid financial market headwinds and even as you have acknowledged that inflation can slow without destroying the labor market, that the most significant drivers of inflation are not demand-based, and that the economy has not yet experienced the full impact of its earlier rate increases. The Fed should pause its rate hikes at the upcoming FOMC policy meeting,” the legislators wrote in a letter to Fed Chair Jerome Powell.
The letter was signed by U.S. Reps. Pramila Jayapal (D-WA), Brendan Boyle (D-PA), Jerrold Nadler (D-NY), Jamaal Bowman (D-NY), Jan Schakowsky (D-IL), Katie Porter (D-CA), and Greg Casar (D-TX), along with U.S. Sens. Elizabeth Warren (D-WA), Sheldon Whitehouse (D-RI), and Bernie Sanders (I-VT).
The lawmakers noted that recent economic data on prices and employment suggests additional rate hikes are unnecessary. Over the past six months, inflation has averaged just 3.6 percent at an annualized rate, compared to 6.4 percent for the previous six months. Meanwhile, wage growth has slowed to 3.2 percent over the last three months.
The Fed funds rate is currently in the 5.0 to 5.25 percent range, the highest in 15 years.
The lawmakers warned Powell against trying to engineer a small rise in the unemployment rate.
“History casts doubt on the Fed’s ability to engineer an unemployment rate that just ‘rise(s) a bit.’ The FOMC’s March forecast shows that the Fed seeks to drive the unemployment rate up by a percentage point this year, from 3.5% in March to 4.5%. But analysts note that since World War II, the unemployment rate has never increased by one percentage point within a year outside of a recession: the unemployment rate has increased by one percentage point 12 times since 1945, and in all 12 times, that increase has been in the context of a recession. And every time the unemployment rate increased by a full percentage point, it continued to increase far beyond that level,” the lawmakers wrote.
They are asking the Fed to respond to a series of questions by May 15 about its projections on how many millions of jobs might be lost if future rate hikes are pursued.