Monday, July 25, 2022

The Coming Recession?

 Elizabeth Warren warn that the Federal Reserve, the American central bank's approach to tackling inflation "risks triggering a devastating recession" without directly addressing many of the key drivers of recent price surges.

Warren argued that aggressive rate hikes "are largely ineffective against many of the underlying causes of this inflationary spike," such as gas and food prices. Last month when asked whether the Fed's rate hikes are expected to bring down gas and food costs, Jerome Powell, the chairman of the Fed, admitted  forthrightly, "I would not think so, no." Nevertheless, Fed officials appear poised to stay the course with another 75-basis-point rate hike.

Warren noted that "when the Fed raises interest rates, increasing the cost of borrowing money, it becomes more expensive for businesses to invest in their operations."

"As a result, employers will slow hiring, cut hours, and fire workers, leaving families with less money," the senator wrote. "In the bloodless language of economists, that's referred to as 'dampening demand.' But make no mistake: If the Fed cuts too much or too abruptly, the resulting recession will leave millions of people—disproportionately lower-wage workers and workers of color—with smaller paychecks or no paycheck at all."

Warren went on to directly criticize former Treasury Secretary Larry Summers, pointing to his recent claim that the U.S. needs "five years of unemployment above 5% to contain inflation—in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment." The current U.S. unemployment rate is 3.6%.

"If Messrs. Powell and Summers have their way, the resulting recession will be brutal. As in past downturns, Republicans in Congress will press for austerity—tax cuts for giant corporations and the rich, weaker regulation on big businesses, and little economic support for the most vulnerable."

Elizabeth Warren Accuses Fed Chair of Fomenting 'Devastating Recession' (

No comments: