Elizabeth Warren ‘Very Worried’ Fed’s Interest Rate Hikes Could Spark A Recession

Topline

Sen. Elizabeth Warren (D-Mass.) said Sunday she is “very worried” the Federal Reserve’s moves to fight inflation will “tip the economy into recession,” after Fed Chair Jerome Powell warned economic growth will slow as the central bank tries to combat inflation by raising interest rates.

Key Facts

During a Sunday appearance on CNN’s State of the Union, Warren said hiking interest rates could put Americans out of work and won’t “deal directly” with some of the root causes of inflation, including the war in Ukraine, supply chain snags and Covid-19.

Warren’s comments were in response to a speech Powell gave Friday in which he pledged to “forcefully” combat inflation, noting it could cause a period of “below-trend growth” that would “bring some pain to households and businesses.”

The senator said Sunday, “what he calls ‘some pain’ means putting people out of work,” adding that small businesses will be particularly vulnerable because interest rate hikes will cause the cost of borrowing to increase.

Crucial Quote

“Do you know what’s worse than high prices and a strong economy? It’s high prices and millions of people out of work,” Warren said. “I am very worried that the Fed is going to tip this economy into recession.”

Tangent

Warren was one of 19 senators—including just six Democrats—who voted against confirming Powell to a second term as Fed chair earlier this year, and was the only member of the Senate Banking Committee to vote against him. She has criticized the Fed for its approach to bank regulation and described Powell, a Republican who was first nominated by former President Donald Trump before President Joe Biden renominated him, as a “dangerous man” whose actions have resulted in making “our banking system less safe.”

Key Background

Warren wasn’t the only one who was concerned after Powell’s comments. Stocks abruptly dipped after Powell’s speech in Jackson Hole on Friday, as investors worried the Fed’s promise to act forcefully on inflation was risking a recession. Powell argued Friday “a failure to restore price stability would mean far greater pain,” and if the Fed waits too long to tackle inflation, “the employment costs of bringing down inflation are likely to increase with delay.” Inflation reached 9.1% year-over-year in June, a 40-year high, though it slowed to 8.5% in July. The Fed is targeting a rate of about 2%.

Further Reading

Recession Watch: Fears Return As Fed Warns Americans Of ‘Some Pain’ As Economy Braces For More Job Cuts (Forbes)

Source: https://www.forbes.com/sites/carlieporterfield/2022/08/28/elizabeth-warren-very-worried-feds-interest-rate-hikes-could-spark-a-recession/