Brown urges Fed not to lose sight of employment mandate amid inflation fight

Bonds

Sen. Sherrod Brown, D-Ohio, is urging the Federal Reserve to exercise caution as it considers another interest rate increase at next week’s Federal Open Market Committee meeting.

In a letter sent to Fed Chair Jerome Powell on Tuesday, Brown, who chairs the Senate Banking Committee, advised the central bank not to “lose sight” of its mandate to maintain full employment in pursuit of tamping down inflation.

“While, for now, the labor market remains relatively stable, we are starting to see job openings decrease and unemployment claims rise,” Brown wrote. “We must stay focused on addressing the root causes of inflation without putting workers’ livelihoods at risk.”

Sen. Sherrod Brown, D-Ohio, asked Federal Reserve Chair Jerome Powell Tuesday to keep the Fed’s full employment mandate in mind as it seeks to rein in inflation with rising interest rates.

The Fed has received Brown’s letter and plans to issue a reply to the senator, a Fed spokesperson told American Banker. 

Brown’s letter comes as concerns mount from economists, analysts and policymakers — including Federal Reserve Bank of Kansas City President Esther George — about the Fed tightening monetary policy too much and too quickly

Since March, the Fed has raised its benchmark interest rate by 3 percentage points in an attempt to temper demand in the economy and bring down 40-year-high inflation. The effort has included interest rate hikes of 75 basis points after each of the past three FOMC meetings. 

Financial markets are broadly expecting another 75 basis-point hike after next week’s meeting, which is set to take place on Tuesday, November 1 and Wednesday, November 2. 

Brown did not comment on any specific projections for the Fed’s next monetary policy adjustment. Instead, he argued that the Fed’s main tool for addressing inflation — adjusting interest rates — is inexact and inefficient in terms of dealing with the underlying causes of rising prices. 

“Monetary policy tools take time to reduce inflation by constraining demand until supply catches up,” Brown wrote, “time that working-class families don’t have.”

He implored Powell not to repeat what he views as mistakes made by past Fed chairs by tightening conditions too much, to the point where employers cut back on their workforces.

“We must avoid having our short-term advances and strong labor market overwhelmed by the consequences of aggressive monetary actions to decrease inflation, especially when the Fed’s actions do not address its main drivers,” he wrote.

Brown argued that congressional remedies to supply side disruptions should be given time to work their way into the economy, highlighting the health care and fiscal components of the Inflation Reduction Act, as well as the Ocean Shipping Reform Act as mechanisms for reducing costs.

He also pointed to increased profit margins for large corporations as key sources of inflation, citing Fed Vice Chair Lael Brainard’s comments earlier this month that there is “ample room for margin recompression to help reduce goods inflation as demand cools, supply constraints ease, and inventories ease.”

Brown also raised another frequently cited concern that the Fed’s actions, when combined with similar actions taken by central banks in other leading economies around the world, could become destabilizing to financial markets.

“Unfortunately, there is a strong chance these simultaneous individual efforts will amplify each other and produce greater than intended consequences,” Brown wrote. “This risk of combined policy response and uncertainty from exogenous events, such as Russia’s illegal war against Ukraine and the anti-competitive actions by cartels like OPEC, creates the real possibility of worsening the global economic situation.”

Articles You May Like

Credit Suisse forecasts $1.6bn loss as wealthy clients withdraw funds
Deal to divvy up NFL Rams’ settlement sets stage for spending decisions
Feds greenlight key O’Hare terminal project
For Emily Dickinson’s Birthday, Visit Her New England Home
Stocks making the biggest moves after hours: Nordstrom, Autodesk and more