ICYMI: At Hearing, Senator Warren Calls out Chair Powell for Fed’s Plan to Throw At Least 2 Million People Out of Work
Warren to Chair Powell: “You cling to the idea that there’s only one solution: lay off millions of workers. We need a Fed that will fight for families. And if you're not going to lead that charge, we need someone at the Fed who will.”
Washington, D.C. — At a hearing of the Senate Banking, Housing, and Urban Affairs Committee (BHUA), United States Senator Elizabeth Warren (D-Mass.) questioned Federal Reserve Chair Jerome Powell on the Fed’s monetary policy plan and its projection that the unemployment rate will rise sharply to 4.6% – more than a percentage point higher than it is today – by the end of the year if the Fed continues to raise interest rates.
During the exchange, Senator Warren highlighted that the Fed’s projections suggest that nearly 2 million people will lose their jobs, and that history shows that the Fed has a poor track record of containing moderate increases in unemployment. Since the end of World War II, the economy has never avoided falling into a recession after the unemployment rate increased by one percentage point within a year. And in 11 out of the 12 times that the unemployment rate increased by a percentage point, unemployment went on to rise another full percentage point. Senator Warren expressed concern that Powell doesn’t have a plan to stop runaway unemployment increases and emphasized that the Fed must protect working families as it works to bring inflation down.
Transcript: The Semiannual Monetary Policy Report to the Congress
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Subcommittee on Economic Policy
Tuesday, March 7, 2023
Senator Elizabeth Warren: Thank you, Mr. Chairman. The Fed has raised interest rates eight times over the last year in what has been the most extreme rate-hike cycle in 40 years. The Fed’s goal is to slow inflation, and your tool—raising interest rates—is designed to slow the economy and throw people out of work. So far you haven’t tipped the economy into a recession, but you haven’t brought inflation under control either. And maybe the reason for that is that other things are keeping prices high—things you can’t fix with high interest rates. Things like price-gouging and supply chain kinks and a war in Ukraine. But you're determined to continue to raise interest rates, so I want to take a look at where you’re headed.
In December the feds released its protections on the state of the economy under your monetary policy plan. According to the Fed's own report, if you continue raising interest rates, as you plan, unemployment will be 4.6% by the end of the year—more than a full point higher than it is today. Chair Powell, if you hit your projections, do you know how many people who are currently working, going about their lives, will lose their jobs?
Fed Chair Jereme Powell: I don’t, I don’t have that number in front of me. I will say, it’s not–
Senator Warren: It’s just a math problem.
Chair Powell: it’s not an intended consequence.
Senator Warren: Well, but it is, and it’s in your report, and that would be about two million people who would lose their jobs. People who are working right now making their mortgages. So Chair Powell, if you could speak directly to the two million hard-working people who have decent jobs today, who you're planning to get fired over the next year, what would you say to them? How would you explain your view that they need to lose their jobs?
Chair Powell: I would explain to people more broadly that inflation is extremely high and it's hurting the working people of this country badly, all of them. Not just two million of them but all of them are suffering under high inflation, and we are taking the only measures we have to bring inflation down.
Senator Warren: And putting two million out of work is just part of the cost, and they just have to bear it?
Chair Powell: Well, will working people be better off if we just walk away from our jobs and inflation remains five percent, six percent?
Senator Warren: Well, let me ask you about what happens if you do this. Since the end of World War II, there have been 12 times in which the unemployment rate has increased by one percentage point within one year, exactly what you're aiming to do right now. How many of those times did the U.S. economy avoid falling into a recession?
Chair Powell: You know, it's not as black and white as -- very infrequent.
Senator Warren: Just looking at the numbers, it actually is pretty black and white.
Chair Powell: (inaudible) has written a book on this.
Senator Warren: There’s been 12 times that we’ve seen a one-point increase in the unemployment rate in a year — that's exactly what your Fed report has put out as the projection. And the plan based on how you're going to keep raising these interest rates. How many times did the economy fail to fall into a recession after doing that out of 12 times?
ChaIr Powell: I think the number is zero.
Senator Warren: I think the number is zero, that's exactly right. So, then the question becomes, we have two million people out of work. Can you stop it at two million people?
History suggests that the fed has a terrible track record of containing modest increases in the unemployment rate, once the economy starts shedding jobs, it's kind of like a run away train, it is really hard to stop. In fact, in 11 out of the 12 times, that the unemployment rate increased by a full percentage point within one year, unemployment went on to rise another full percentage point on top of that. If that's what happens this time, we would be looking at at least 3.5 million people who would lose their jobs.
So, Chair Powell, if you reach your goal, and two million people get laid off by the end of this year, and then, just like in 11 out of 12 times, that unemployment has risen by a point in a single year, it keeps on rising, and then we have got 2.5 million people out of work, we’ve got three million people who get laid off, we’ve got 3.5 million people who get laid off, what's your plan?
Chair Powell: Well, right now, the unemployment rate is 3.4 percent which is the lowest in 54 years. We actually don't think that we need to see a sharp or enormous increase in unemployment to get inflation under control.
Senator Warren: I'm looking at your projections. Do you call laying off two million people this year not a sharp increase in unemployment?
Chair Powell: I would say 4.5 percent-
Senator Warren: Explain that to the two million families who are going to be out of work.
Chair Powell: We’re not, again, we’re not targeting any of that. But I would say even 4.5 percent unemployment is well better than most of the time for the last, you know, 75 years.
Senator Warren: In other words, you don't have a plan to stop a runaway train if it occurs. You know, Chair Powell, you are gambling with people's lives. And there's a pile of data showing the price gouging and supply chain kinks, and the war in Ukraine are driving up prices.
You cling to the idea that there’s only one solution: lay off millions of workers. We need a Fed that will fight for families. And if you're not going to lead that charge, we need someone with the Fed who will.
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