Jerome Powell and Elizabeth Warren fought over the Fed’s appetite for rising unemployment

In the past 74 years, the US has only avoided a recession once when unemployment moved up by 1%

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 U.S. Senator Elizabeth Warren (D-MA) gestures as Federal Reserve Chair Jerome Powell testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing on the "Semiannual Monetary Policy Report to the Congress", on Capitol Hill in Washington, D.C., U.S., June 22, 2022.
Making a dovish case.
Photo: Elizabeth Frantz (Reuters)

During a Congressional hearing on Tuesday, Massachusetts senator Elizabeth Warren went after Federal Reserve chair Jerome Powell for his prediction that the unemployment rate will have to increase in order to tame inflation.

“In December, the Fed released its projections on the state of the economy under your monetary policy plan,” Warren said. “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.”


Warren then asked Powell what he might say to the two million Americans who would be put out of work under this scenario.

“I would explain to people more broadly that that inflation is extremely high and it’s hurting the working people of this country badly,” Powell said. “All of them, not just 2 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.”


Powell was speaking before the Senate Banking Committee, as part of the Fed’s semiannual report on monetary policy. The appearance was Powell’s first time before Congress since jobs data showed that the economy wasn’t slowing down in line with the Fed’s goals. In prepared remarks, he said the central bank would likely have to raise rates higher than expected.

Advancing National Security Foreign Policy Through Sanctions, Export Controls, Other Economic Tools

The exchange between Warren and Powell reveals just how crude the Fed’s tools are for addressing inflation in an environment where the composition of the labor market has fundamentally changed, the war in Ukraine continues to hamper supply lines, and the global economy is still struggling to turn itself on after being off for more than a year during the height of the pandemic.


Louisiana senator John Kennedy also challenged Powell on the Fed’s intentions for raising rates. “I’m not being critical,” Kennedy said. “When you’re slowing the economy, you’re trying to put people out of work. That’s your job, is it not?”

Powell replied “not really,” and then emphasized that the Fed is trying to restore price stability. “We’re not trying to [raise unemployment],” Powell said. “We’re trying to realign supply and demand, which could happen through a bunch of channels, for example, job openings.”


Warren noted that since World War II the US economy has almost never avoided a recession during a year in which the unemployment rate has risen by one percentage point.

Since businesses tend to invest based on consumer demand versus the cost of capital, the Fed cutting interest rates probably won’t prevent a recession, just like the current rate hikes are not yet stopping the economic boom, wrote John Jay economics professor JW Mason in Barrons.