September 16, 2024

On Eve of Key Fed Meeting, Warren, Hickenlooper, Whitehouse Urge Chair Powell To Cut Interest Rates from Two-Decade Highs to Limit Threat of Economic Slowdown

Senators call for 75 basis-point cut; Fed Chair has acknowledged that “(t)he time has come for policy to adjust.”

“The Committee must consider implementing rate cuts more aggressively upfront to mitigate potential risks to the labor market.”

Text of Letter (PDF) 

Washington, D.C. – U.S. Senator Elizabeth Warren (D-Mass.), John Hickenlooper (D-Colo.), and Sheldon Whitehouse (D-R.I.) called on the Federal Reserve (Fed) to cut the federal funds rate, currently at a two decade-high of 5.3 percent, by 75 basis points (.75%; each basis point is one hundredth of a percent) at the Federal Open Market Committee (FOMC) meeting that begins tomorrow. 

Economists have warned for months that the Fed risks weakening the economy by moving too slowly to cut interest rates. Even Fed Chair Jerome Powell acknowledged last month that “(t)he time has come for policy to adjust.” 

However, it may be too late – Powell’s delays have threatened the economy and left the Fed behind the curve. Inflation has fallen to 2.5 percent, while the unemployment rate has ticked up to 4.2 percent, from 3.5 percent in July 2023. Employment numbers adjust slowly, so the Fed should front load rate cuts to avoid sliding towards a potential crisis.

Without larger rate cuts, the Fed risks further cooling in labor market conditions. At the end of August 2024, the Bureau of Labor Statistics revealed that there were 818,000 fewer jobs created between March 2023 and March 2024 than initially estimated. While these are not job losses, they do indicate that job growth has been much slower than the data previously indicated. While the economy remains strong overall, this softening of the labor market offers further justification for lowering rates. 

A rate cut of 75 basis-points would put the federal funds rate at 4.5 - 4.75%, which would still be higher than it was at any point between November 2007 and January 2023.

Senator Warren has been ringing the alarm bells about the serious dangers of Chair Powell’s continued interest rate hikes: 

  • In July 2024, Senators Warren, Hickenlooper (D-Colo.), and Sheldon Whitehouse (D-R.I.) urged Fed Chair Jerome Powell, cut to interest rates at the Fed’s July Federal Open Market Committee (FOMC) meeting, in light of economic data showing that inflation was decreasing and very close to the Fed’s target. 
  • In June 2024, Senators Warren, Rosen (D-Nev.), and Hickenlooper (D-Colo.) wrote to the Federal Reserve (the Fed), urging Chair Jerome Powell to cut the federal funds interest rates from the two-decade-high of 5.5 percent.
  • In March 2024, Senators Warren and Sheldon Whitehouse (D-R.I.) sent a letter to Chair Powell, expressing concerns about the damaging impact of the Fed’s extreme 2022 and 2023 interest rate hikes, which have halted deployment of clean energy technologies and have undermined the Inflation Reduction Act’s climate and consumer benefits. The senators called on the Fed to cut interest rates to allow for continued progress on clean energy projects and the climate and economic benefits they provide. 
  • In January 2024, Senators Warren, John Hickenlooper (D-Colo.), Jacky Rosen (D-Nev.), and Whitehouse sent a letter to Chair Powell, calling on the Fed to reverse its troubling interest rate hikes that have driven mortgage rates to 20-year highs and have put affordable housing out of reach for too many Americans. 
  • In July 2023, Senator Warren sent a letter to Chair Powell, raising concerns about the disproportionate impact of the Fed’s monetary policy amid rising unemployment for Black workers. 
  • In May 2023, Senator Warren led lawmakers in a letter to Chair Powell, calling on the Fed to pause interest rate hikes and respect its dual mandate of maximum employment and price stability, particularly in the wake of recent turmoil in the banking system following the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank. The lawmakers expressed serious concerns that the Fed’s monetary policy strategy of more rate hikes could trigger a recession, throw millions out of work, and crush small businesses. 
  • In March 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren questioned Chair Powell on the Fed’s monetary policy plan and its projection that the unemployment rate will rise sharply to 4.6% by the end of the year if the Fed continues to raise interest rates. 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.
  • In November 2022, Senator Warren and Representative Madeleine Dean (D-Pa.) led their colleagues in sending a letter to Chair Powell, expressing concern and seeking answers about the Fed’s most recent economic projections, its intentions to continue to raise interest rates at a rapid pace, and its disturbing warning to American families that they should expect “pain” in the coming months. 
  • In July 2022, Senator Warren published an op-ed in the Wall Street Journal warning that the Fed’s decision to aggressively raise interest rates risks triggering a devastating recession.
  • In June 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called out Chair Powell for the Fed’s announced interest rate increases that wouldn’t address the key drivers of inflation. Chair Powell confirmed that the Fed’s interest rate increases will not bring down gas and food prices, two of the biggest drivers of inflation.

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