Federal Reserve Chair Jerome Powell testified in front of Congress for over two hours on Tuesday, and one moment that stood out was the heated exchange between Senator Elizabeth Warren and Powell. Warren ripped into Powell over job-killing rate hikes and lack of a plan to stop a runaway train if it occurs.
Warren’s Heated Exchange with Powell
In Powell’s opening remarks, he was still pretty aggressive on what the future holds for rate hikes, despite a recent moderation in inflation. Although the latest economic data has come in stronger than expected, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy. As a result, the Federal Reserve is not done with aggressive actions.
Warren Points Out Flaws in the Fed’s Plan
Warren noted that while the Fed has not tipped the economy into a recession, it has not brought inflation entirely under control either. Other factors like price gouging, supply chain kinks, and war in Ukraine are also contributing to high prices that cannot be fixed with high-interest rates. The senator accused Powell of being determined to continue raising interest rates without a clear plan for the labor market.
Powell Defends His Position
Powell defended his position by explaining that inflation is extremely high and is hurting the working people of this country badly. Putting 2 million people out of work is just part of the cost of bringing inflation down, and people will have to bear it.
Warren pointed out that history suggests the Fed has a terrible track record of containing modest increases in the unemployment rate, once the economy starts shedding jobs. She accused Powell of gambling with people’s lives and called for a Fed that will fight for families.
Warren essentially called for the end of Powell’s tenure as Fed chair and the appointment of someone new by President Biden. The current United States employment rates are at their lowest, and Powell’s projections could result in millions of people losing their jobs.
Investors Wait for March Meeting and CPI Report
The exchange between Warren and Powell caused a stir in both the stock and crypto markets, as investors feared the consequences of the Fed’s actions. The next Federal Reserve meeting is scheduled for March 21-22, and the results will come in on the 22nd. Investors will be keeping a close eye on the meeting, as well as the next CPI report, which is due on March 14. The report will shed light on inflation trends in the country and how the Fed may respond to them.
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Senator Elizabeth Warren (D-MA) recently criticized Federal Reserve Chairman Jerome Powell during a congressional hearing regarding the release of $500 billion to a group of private banks without any “strings attached” or conditions.
During a Senate Banking Committee hearing on May 7th, 2020, Warren took Powell to task, focusing her criticisms on the lack of transparency surrounding the banks receiving the funds. Warren critiqued the fact that although Powell promised that the funds would be distributed to “middle market” small businesses, large corporations such as Exxon Mobil, Goldman Sachs, and Blackrock had been amongst those mentioned as recipients.
Warren asked Powell why no public records of the funds were made available. Powell responded by attempting to explain the hectic process of quickly dispersing the funds, in order to address short-term capital needs. Warren argued that the conditions listed for the loans were inadequate and had been changed several times. Later in the hearing, she asserted that the distribution of the funds may have been mishandled — claiming that “odds were—that the taxpayers got left holding the bag”.
The hearing was part of an ongoing debate over the distribution of the funds set aside by the federal government for businesses struggling during the COVID-19 pandemic. Additionally, the conversation was very much influenced by the presidential election this November, as the two main candidates bring two very different approaches to how to manage the economy. Warren has been a proponent of tighter regulations, especially surrounding the banking sector, whereas President Donald Trump’s view has been far less stringent.
The hit-back from Warren marks yet another exchange between the outspoken senator and the Federal Reserve chairman — Powell’s handling of the pandemic thus far has already been subjected to sharp criticism from Warren. Warren and her fellow Democrats have remained vocal in pushing a more aggressive approach to aiding businesses at the cost of a greater money injection from the federal government.
Though the hearing ended with heated words from Warren, her final criticisms were more nuanced than her initial charges. She asked the public to draw their own conclusions as to whether or not the funds had been managed well enough. Ultimately, though, Warren’s message was clear: without the proper oversight, further abuses of federal funds by corporate banks are possible — and unless Powell takes greater steps to ensure the funds are distributed with proper accountability, problems such as those underscored during the hearing could continue.
