“The Fed knows raising interest rates will not address the root causes of rising prices,
but they will just keep doing so, even at the cost of millions of working-class
people’s livelihoods.”

Video (YouTube)

WASHINGTON – Today, in a House Financial Services Committee hearing, Congresswoman Ayanna Pressley (MA-07) pressed Fed Chair Jerome Powell on the Fed’s blunt response to inflation – raising interest rates – which could plunge millions of people back into unemployment, dampen wage growth, and tip the economy into a recession. In her line of questioning, Rep. Pressley called to expand the Fed’s toolkit with more precise and targeted tools to truly heal the economy and tackle inflation responsibly.

A full transcript of her exchange with the Chairman is available below and the full video is available here.

Transcript: Pressley Presses Chair Powell on the Fed’s Ineffective and Harmful Response to Inflation

House Financial Services Committee

June 23, 2022

REP. PRESSLEY: Thank you Madam Chair. Chairman Powell, without question the Fed has a role to play in healing our economy. But as with any treatment, the wrong medication could cause even more harm and make the patient more ill.

Chairman Powell, at your latest press conference, you stated quote ‘wages are not principally responsible for the inflation we are seeing’ end quote. I certainly agree with that assessment and as do many economists. Considering that wages are not driving inflation, why is the Fed addressing inflation with tools which primarily impact wages, such as interest rates?

CHAIRMAN POWELL: Well, our tools principally impact inflation, not necessarily wage inflation. Our job is price inflation. But I will say on wage inflation, the issue is that over time wages are, really very important over time, particularly for service companies where most of the costs are really in wages. We all love to see wage increases but these increases that we were having, some of them just are substantially bigger than what would be consistent with two percent inflation.

REP. PRESSLEY: Thank you. Throughout today’s hearing, to that point, you’ve indicated that the Fed doesn’t have more precise tools at your disposal. Chairman, the root causes of the inflation we are seeing are supply chain disruptions outside of the Fed’s control, whether its COVID-19 lockdowns in China or the Russia-Ukraine war, which is why this knee-jerk response to raise interest rates is so alarming. The Fed cannot control the factors causing inflation, but this policy choice would plunge millions of people back into unemployment, dampen wage growth, and tip the economy into a recession. 

There’s an old adage, Chairman Powell: if all you have is a hammer, everything looks like a nail. You’ve recently said that the Fed’s tools, like interest rates and the balance sheet, are “famously blunt” and lack precision. So, in that case, do you agree that the Fed needs new tools that are more precise to better fulfill its statutory mandate of price stability and to maximize employment?

CHAIRMAN POWELL: No, I don’t think we’re looking for new tools. I would just say that a big part of the inflation that’s happening is really not going to be affected by tools, but a big part is going to be affected by our tools and that’s the part that’s related to demand.

REP. PRESSLEY: But Chairman, by your own account the Fed’s current tools are ill-suited to deal with the inflation we are seeing, so perhaps now is the time to expand the Fed’s toolkit to meet the unique moment that we find ourselves in.

For example, one tool that could help the Fed tailor a more precise response to inflation is direct credit regulation. This would allow the Fed to regulate the availability of credit in the specific sectors of the economy experiencing high inflation without impacting other sectors.Would you support Congress passing legislation to give the Fed more precise tools to tackle inflation such as this idea?

CHAIRMAN POWELL: That’s not something we would seek of course it’s up to Congress to make those decisions.

REP. PRESSLEY: But your own admission, your tools are too blunt and not precise enough, so what additional tools do you believe the Fed needs to respond more precisely to inflation?

CHAIRMAN POWELL: Well again our tools are blunt but they are the right tools to deal with broad, aggregate demand. And that is a more important determinant of inflation than food and energy prices as painful as energy and food prices are. The bigger piece is related to demand. We can’t help with food prices to your point but we can help with aggregate demand and we do that through the tools we have. We’re not seeking a deeper involvement in the economy like you’re talking about but that’s a question for Congress. Congress can change our toolkit or our mandate.

REP. PRESSLEY: Well you know, in this moment of overlapping crises, from supply chain disruptions to high inflation, we need precise policies that respond to the needs of the American people. The Fed knows raising interest rates will not address the root causes of rising prices, but they will just keep doing so, even at the cost of millions of working-class people’s livelihoods. We need a more sophisticated toolkit for the era we are in to truly heal our economy and tackle inflation responsibly.

Thank you and I yield.

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