Those calls, which echo earlier concerns from Sen. Elizabeth Warren (D-Mass.), reflect growing criticism among left-leaning economists and Fed watchers who say the central bank is going too far and risks overcorrecting and pushing the economy into a recession.
The Fed has raised its policy rate five times since the spring, and plans to hike rates two more times before the end of the year. But those moves operate with a lag, and it will be months before officials fully understand the scope — and toll — of such forceful action.
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“High inflation necessitates a response. But the concern is the Fed is doing too much, too quickly,” Hickenlooper wrote in his letter to Powell. “It has already taken drastic action by raising rates by so much in a short period of time. We should wait to see the effects on the economy and how those changes are absorbed.”
Inflation is the economy’s biggest problem, with prices climbing 8.2 percent in September, compared with the year before. So far, Fed policy has done little to bring consumer prices back down to normal levels, and officials are showing no signs of backing down. Next week, the Fed is widely expected to announce its fourth consecutive hike of 0.75 percentage points.
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Rate hikes target demand in the economy by making a range of lending more expensive. But they do nothing to address supply-side issues keeping inflation high — from Russia’s invasion of Ukraine to persistent labor shortages. That’s why a growing number of Democrats worry that rate hikes alone won’t solve the inflation problem and will cause economic pain and harm the labor market by causing businesses to pull back on hiring or lay people off.
So far, the economy hasn’t been swamped by widespread layoffs, but certain sectors — like housing and tech — are showing signs of softening. Even at the Fed, policymakers expect the unemployment rate could rise to 4.4 percent next year, up from the current 3.5 percent. (Generally, a rise of half a percentage point or more in the unemployment rate has signaled a recession.)
“While, for now, the labor market remains relatively stable, we are starting to see job openings decrease and unemployment claims rise,” Brown wrote in his letter. “We must stay focused on addressing the root causes of inflation without putting workers’ livelihoods at risk.”
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The Fed closely guards a rare independence from politics, but it is not immune to Washington, especially days when the economy is top of mind for voters headed to the polls. The Biden White House regularly declines to comment on Fed policy. But members of Congress operate under different norms. (Neither Hickenlooper nor Brown is up for reelection this year.)
Over the last year, Democrats and Republicans have shifted their arguments for what the central bank should be doing for the economy. For much of 2021, Democrats applauded the Fed — and Powell — for waiting to raise rates, since the delay allowed the labor market to keep growing, even as inflation climbed.
Republicans, meanwhile, sharply criticized the central bank, saying that the Fed was letting inflation climb out of control. But lately, Republicans have been largely silent on the Fed’s rate hikes and, if anything, say the Fed has a long way to go before easing up.