Sen. Elizabeth Warren issued a warning to Fed Chair Jerome Powell that “extreme rate hikes” could backfire and “throw millions out of work.” The Massachusetts lawmaker tweeted that while President Biden and “Democrats in Congress” have spurred a “strong economic recovery” and “created over 12 million jobs,” those gains could be reversed by a failure by the Fed to consider its “dual mandate.”
That means fighting inflation, for which the Fed’s main tool is raising interest rates, but also “maximizing employment.” Implicit in the duality is Warren’s understanding that it is very difficult to cool the economy without having that chill make employment shiver.
Warren warns Powell against over-corrective rate tweaks that freeze inflation but give the jobs market frostbite as result. Her warning is like much good advice — hard to follow. Tweak it, Warren says, but don’t tweak it too much.
President Biden & Democrats in Congress took bold action to spur a strong economic recovery from COVID & create over 12 million jobs.
— Elizabeth Warren (@SenWarren) March 10, 2023
Fed Chair Powell must remember his dual mandate to fight inflation & maximize employment, not throw millions out of work with extreme rate hikes. https://t.co/DlPI5IAQxQ
Unlike most of the legislators tasked with allocating trillions of dollars in an extraordinarily complex US economy, Warren really is an economist by training. The expertise gives her a strong understanding of the economic levers at Powell’s control, and their potential impact.
Warren isn’t telling Powell anything he isn’t already mindful of, of course. But her warning sounds an alarm to her party that their progress could be in jeopardy.
[Background: Warren holds a Ph.D. in economics from the University of Pennsylvania, which she received in 1995. She received a law degree from Rutgers University in 1975. In the early 1990s, she began teaching bankruptcy law at Harvard Law School, and in 1995, she became a full professor. She is a leading expert on consumer finance and bankruptcy law and an advocate for consumer protection and financial regulation.]
