Republican Sen. John Kennedy confronted Federal Reserve chair Jerome Powell on Tuesday about the Fed’s plans to keep raising interest rates to “cool the economy.”
During a Senate Banking Committee hearing, Kennedy specifically accused Powell and the Fed of effectively trying to put Americans out of work.
Watch the back-and-forth exchange below:
“Let’s try to unpack this then. I’m not trying to trick you. You’re raising interest rates. You’re raising interest rates to slow the economy, are you not?” the exchange began with Kennedy asking Powell.
“Yes, to cool the economy off,” Powell replied.
“And one of the ways you measure your success – other than fluctuation and gross domestic product – is the unemployment rate, is it not?” the senator continued.
“[It’s] one of the measures,” the Fed chair replied.
“Ok. So, in effect – I’m not being critical – when you’re slowing the economy, you’re trying to put people out of work. That’s your job, is it not?” Kennedy then asked.
The accusation was based on the direct correlation between interest rates and the unemployment rate.
“[H]igher interest rates can eventually lead to a rise in unemployment and fewer job opportunities,” according to Vox.
Responding to Kennedy’s accusation, Powell tried crying foul.
“Not really. We’re trying to restore price stability,” he said, prompting the senator to double down on his accusation.
“No, you’re trying to raise the unemployment rate. I know you don’t like the phrase, so let me strike it. You’re trying to raise the unemployment rate, are you not?” Kennedy pressed.
“No, we’re not trying to raise [unemployment]. We’re trying to realign supply and demand, which could happen through a bunch of channels, like, for example, just job openings …,” the Fed chair tried replying before being cut off.
“Let me put it another way, ok? The Economist did a wonderful study. They looked at 10 disinflationary periods in America going all the way back to the 1950s. Disinflation is what you’re trying to do. It’s the slowing in the rate of inflation. Am I right?” Kennedy said.
“Yes,” Powell replied.
“In other words, prices don’t go down, they just don’t go up as fast. Deflation is when prices actually go down. You’re trying to achieve disinflation, are you not?” the senator continued.
Powell again replied with a “yes.”
Kennedy then swooped in with a historical uppercut.
“Ok, based on history and the 10 times that we got inflation down since the 1950s, in order to reduce inflation by two percent, unemployment had to go up 3.6 percent. Now, that’s history, is it not?” he said, preparing to checkmate Powell.
But the Fed chair pushed back by attributing the rise in unemployment to “recessions and downturns” in the market. Kennedy wasn’t convinced.
“Ok, right now, the current inflation rate is 6.4 percent and the current unemployment rate is 3.4 percent. Now, if history is right, I’m not asking you to, again, blame anybody, but if history is right, unless you get some help in order to get inflation down from 6.4 percent to, let’s say, 4.4 percent, the unemployment rate is going to have to rise to 7 percent based on history.”
“That’s what the record would say,” Powell conceded.
“Okay, and to get inflation down to 2.2 percent, based on history — an immutable fact — unemployment would have to go to 10.6 percent, would it not?” Kennedy then said, effectively checkmating the Fed chair and leaving him speechless.
The discussion eventually concluded with Kennedy acknowledging Powell’s reluctance to admit the truth but stressing that the truth is the truth, nonetheless.
“I know you’re reluctant to admit it and you don’t want to get in the middle of a policy dispute, but I think it’s undeniable, it’s undeniable that the only way we’re going to get the sticky inflation down is to attack it on the monetary side, which you’re doing, and on the fiscal side, which means Congress has got to reduce the rate of growth of spending and reduce the rate of growth of debt accumulation,” he said.
“Now, I get that you don’t want to get in the middle of that fight, but the more we help on the fiscal side, the fewer people you’re going to have to put out of work,” he added.
Interestingly, Sen. Elizabeth Warren, a Democrat, also made the same accusation during Tuesday’s hearing.
Senator Elizabeth Warren says about 2 million people will lose their jobs as a result of the Fed’s anticipated monetary tightening.
She asked Jerome Powell to explain why these people must lose their jobs as part of the effort to bring down inflation https://t.co/c6Cqoi0njm pic.twitter.com/zGGR1GwWOt
— Bloomberg (@business) March 7, 2023
“If you continue raising interest rates as you plan, unemployment will be 4.6 percent by the end of the year. … If you could speak directly to the two million who you’re planning to get fired over the next year, what would you say to them?” she said.
“Inflation is extremely high, and it’s hurting the working people of this country badly — all of them. Not just two million of them. And we are taking the only measures we have to bring inflation down,” Powell replied.
“And putting two million people out of work is just part of the cost, and they just have to bear it?” Warren pressed.
“Will working people be better off, if we just walk away from our jobs and inflation remains 5/6 percent?” the Fed chair responded.
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