Federal Reserve Chairman Jerome Powell and Sen. Elizabeth Warren engaged in a heated exchange Tuesday during the central bank chief's latest appearance before Congress when he defended the Fed's strategy for fighting inflation following criticism from the Massachusetts Democrat.
The tension began after Warren noted the Fed has raised interest rates eight times over the past year in what she called "the most extreme rate hike cycle in 40 years" and pointed to a report from the Fed late last year forecasting that unemployment would rise to 4.6% if the central bank continues further increases rates as planned.
She said a 1% increase means some 2 million American workers would end up out of work and asked Powell to address those folks directly and "explain your view that they need to lose their jobs."
Powell said he would "explain to people more broadly that inflation is extremely high, and it's hurting the working people in this country badly. 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."
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Warren then shook her head, questioning Powell, saying, "Putting 2 million people out of work is just part of the cost, and they just have to bear it?"
The Fed chairman fired back, "Will working people be better off if we just walk away from our jobs and inflation remains 5%, 6%?"
The progressive senator then told Powell there have been 12 times since the end of World War II in which the unemployment rate rose by one percentage point within a year, which the Fed is now on track to do, and asked him how many of those times the U.S. economy was able to avert falling into a recession.
"You know, it's not as black and white as … very infrequent …," Powell began to answer, before Warren cut him off, saying, "Just looking at the numbers, it actually is pretty black and white."
Powell eventually said he believed the Fed was unable to avoid a recession each time unemployment rose by 1% in a year. Then, Warren grilled him further, saying, "History suggests that the Fed has a terrible track record of containing modest increases in the unemployment rate. Once the economy starts shedding jobs, it's like a runaway train."
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She asked what his plan would be if unemployment continues to rise beyond the Fed's projections.
"Well, right now the unemployment rate is 3.4%, which is the lowest in 54 years. And we actually don't think that we need to see a sharp or enormous increase in unemployment to get inflation under control," Powell answered.
Warren pushed back. "Do you call laying off 2 million people this year not a sharp increase in unemployment? Explain that to the 2 million families who are going to be out of work," she responded.
The Fed chair replied, "Again, we're not targeting any of that, but I would say even 4.5% unemployment is well better than most of the time for the last, you know, 75 years."
The senator became fired up again and proceeded to suggest Powell should be replaced as Fed chair.
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"In other words, you don't have a plan to stop a runaway train if that occurs," Warren said. "Chair Powell, you are gambling with people's lives. And there's a pile of data showing the price gouging and supply chain kinks and the war in Ukraine are driving up prices.
"You cling to the idea that there's only one solution: lay off millions of workers," she continued. "We need a Fed that will fight for families, and if you're not going to lead that charge, we need someone at the Fed who will."
