Senator Warren calls Out Chair Powell for Fed's Plan to Throw 2 Million People Out of Work

[BeyondGeography]

[SheltieLover]

1. K&R!

[Rhiannon12866]

17. Elizabeth Warren is always terrific!

Back in the day, when I took that "Who Do You Side With?" quiz, she came in first for me.

[SheltieLover]

18. She sure is!

[BComplex]

2. This woman is so friggin' brilliant and so well spoken.

Between her and Katie Porter, we've got the brain power that would keep the economy working for EVERYONE. They need to be running the economy in this country.

[Rhiannon12866]

12. I couldn't agree more!

And Elizabeth Warren was Katie Porter's law school professor and mentor!

[jaxexpat]

3. In a long and winding fashion, at her very best manners, Elizabeth is asking.....

the Fed, the old capitalist profit worshipers, to consider commencing the next logical phase of Roosevelt's New Deal. A monumental and long-awaited event whose time may have finally come.

And still, these decades later, a most relevant question remains unanswered, largely due to lack of empirical evidence. Is profit the only dependable motivation to sustain a progressive society-civilization?

Which begs the following question, is intelligent regulation a function compatible with democracy? compatible with the US constitution?

I don't count on much useful toward answering that question coming from technology in any foreseeable time. It remains, after all and inevitably, a solution burdened by GIGO. It's authors, slaves to impression and persuasion.

[Fiendish Thingy]

4. She's not wrong, but...

Warren acknowledges at the beginning of the clip there are other factors at play that Powell has no control over, but she doesn’t acknowledge that the legislative branch does have control over, such as price gouging and tax cuts for the rich.

Unfortunately the legislative branch couldn’t act to address those factors because of Manchin, Sinema and the filibuster. Repealing the Trump tax cuts, and even increasing taxes on billionaires would have had significant effect on inflation, but, alas…

Powell really has only one weapon against inflation, and that is interest rates. Historically, the average fed rate runs in the 5-7% range (the rates have been abnormally low since the 2008 GFC, began to creep up, then COVID smacked them down again). Currently, the Fed’s rate is at 4.5%, below the historic average. Powell’s target was originally 5.1%, but since inflation isn’t cooling enough, quickly enough, he may go higher.

Powell’s only mistake was waiting too long to begin hiking rates, so he had to make larger hikes more frequently.

Currently unemployment is at 3.5%, a 50 year low. Only us old boomers have seen it this low before. “Full employment” is considered to be reached when unemployment is at or below 5%. Warren states that, with Powell’s projected hikes, the unemployment rate will rise to 4.6%, putting 2 million people out of work, yet 4.6% is still considered to be “full employment”.

Now, if Powell were to pause hikes, those 2 million people might keep their jobs, but inflation would continue to grow, affecting all 330 million Americans. So the dilemma is: which is worse? Sacrificing 2 million jobs (which may only be temporary as tons of new jobs are being created by infrastructure and manufacturing projects made possible by the IRA, as well as millions of boomer retiring), or risking double digit inflation? (which again, us old boomers remember from the late 70’s/early 80’s)

Which scenario, 4.6% unemployment, or double digit inflation, is worse for Dems in the 2024 election? (The answer should be obvious)

[BeyondGeography]

5. False choice there

No one is forecasting double-digit inflation; the current rate is 6.4 and it has declined five months in a row. Powell wants it back at 2% and is trading a point of unemployment for that.

Of course, Powell’s not thinking about two million laid off people, he’s thinking 4.5% unemployment, no biggie. But as Warren says in the clip that in the last 11 of 12 cases of unemployment rate increases of 1%, the Fed has failed to limit those increases to 1%, so we’re probably looking at 3.5 million jobs lost. Just in time for 2024. See how that works?

I do agree with this part of your statement: the choice is clear.

[Fiendish Thingy]

6. If Powell were to stop hiking rates, we would likely have double digit inflation by Nov. 2024

No one is projecting double digit inflation now because of the expectation that hikes will continue.

Inflation dropped five months in a row, until last month, which is why Powell intends to keep hiking.

242,000 jobs added in the private sector last month- the economy is still running hot, driving inflation (along with corporate price gouging), and Powell only has one tool.

The Canadian parliament is dragging the CEO’s of all major grocery chains in for questioning over price gouging- Warren should do the same, even if there’s no chance any legislation gets passed.

Bottom line: inflation affects everyone, and is a greater political liability than below average to average unemployment. As long as the the bulk of job losses don’t come from swing states (and the evidence points to major job gains in those states due to infrastructure projects and manufacturing growth), Dems should see a net benefit between reduced inflation and an uptick in unemployment.

[BeyondGeography]

9. I really don't see the argument for rate hikes saving us from double-digit inflation

Powell himself isn’t even close to thinking along those lines. He can’t live with between 4-6% rates of inflation because his job as he sees it is to get the number down to 2%. In return, he’s willing to sacrifice millions of jobs so we can get back to good old days of wage stagnation, cheap money and bullet-proof stock markets.

As for the politics, it’s too early to even know what impact prior rate hikes have had on inflation. The risk is that more rate hikes will not address (and have not addressed) the supply-related portion of inflation and we’re just stuck with the R-word headed into an election year. Not seeing the upside here.

[Fiendish Thingy]

11. Rate hikes reduce demand, plain and simple.

It’s a blunt tool and it’s the only one the Fed has.

Without hikes, in the current expanding job climate, demand will increase, and so will inflation.

If inflation stabilized at 4-6%, Powell might be convinced to pause hikes, but that isn’t the case. The economy is running so hot that inflation reversed and ticked up slightly last month.

Increasing the cost of borrowing will cool the real estate market, which affects the banking/mortgage industry, which has already scaled back operations and is anticipating further reductions. Higher rates also affect sales of big ticket items like cars.

Congress can’t/won’t act.

Biden could try some Nixon/Ford/Carter-style EO’s, but that’s unlikely.

There is indeed risk of over correcting, and causing too sharp an economic contraction, but as these hikes have been foreshadowed way in advance (which is why mortgage companies are scaling back), projections are for a soft landing or no recession leading into 2024. Of course, there are many uncontrollable variable still at play- the war in Ukraine, the debt ceiling, corporate price gouging that all could affect the economy. The good thing is, if there is a sudden shock, the Fed now has room to drop rates if needed (highly unlikely).

[mjvpi]

10. The Fed has one tool at its disposal. Yup, they nailed it.

Your logic is sound in how the Fed works. Senator Warren sees 2 million faces, times 3 for family members. I am as old as you are. I lived through the 70s. I am still running my small business. What is driving inflation in the world that I live in is supply chain problems and transportation costs. Higher interest rates probably won’t solve either of those and if anything, could amplify both of those problems.

[Rhiannon12866]

16. Senator Warren has an acute understanding of how these things work.

And she walks the walk...

[judesedit]

7. Warren's fantastic

[Rhiannon12866]

15. Clearly our best and brightest, and she speaks out!

[Doremus]

8. Powell and his benefactors want cheap labor again.

What better way to usher in a new-old era of desperate people willing to work for less than their worth. Create a recession and make jobs less abundant. Voila and cha-ching!

And a Warren/Porter ticket would be glorious.

[progressoid]

13. +1

Yep.

[Rhiannon12866]

14. +2!