Warren, Hickenlooper, Whitehouse Urge Fed to Protect American Economy, Cut Interest Rates from 20-Year Highs

July 31, 2024

Warren, Hickenlooper, Whitehouse Urge Fed to Protect American Economy, Cut Interest Rates from 20-Year Highs

Economic experts across the political spectrum and economic data make clear that federal funds rate need to be cut

"The failure to (cut rates) would indicate that the Fed is giving in to bullying, and is putting political considerations ahead of its dual mandate to 'promote maximum employment and stable prices.'"

Text of Letter (PDF)

Washington, D.C. - U.S. Senators Elizabeth Warren (D-Mass.), John Hickenlooper (D-Colo.), and Sheldon Whitehouse (D-R.I.) wrote to the Chair of the Federal Reserve Board (Fed), Jerome Powell, urging a cut to interest rates at this week's Federal Open Market Committee (FOMC) meeting, in light of economic data showing that inflation is decreasing and is very close to the Fed's target. If the Fed fails to cut rates at this week's meeting, the country will not see lower rates until at least September.

In recent weeks, Republican members of Congress have threatened the independence of the Fed, suggesting that the Fed cutting rates before the 2024 election would be "viewed as political." However, economic data suggests that the federal funds rate should already be lower than it is now. In fact, economic experts across the political spectrum are now calling for the Federal Reserve to act. The members urged the Fed to resist partisan bullying and warned against 'putting political considerations ahead of its dual mandate to "promote maximum employment and stable prices."

The personal consumption expenditures (PEC) index, a key gauge for inflation, decreased for the third consecutive month in June, making a strong case for rate cuts. Additionally, while the labor market is healthy and inflation is declining, the unemployment rate increased from 3.6 percent to 4.1 percent over the last year and job openings are down 20 percent. The Wall Street Journal's chief economics commentator argues that the unemployment rate increase may be indicative of a trend because when unemployment ticks upwards, "it tends to keep going up." While wage growth remains strong, it has slowed in recent months, and surveys of companies' pay plans indicate that it is likely to continue slowing into next year. Without rate cuts, the Fed risks erasing the country's post-pandemic economic gains.

The federal funds rate has stayed in the 5.25-5.5 percent range for a year, its highest level in more than 20 years. Households are feeling the pressure of high rates-particularly on their credit cards and auto loans. Forcing American families to wait until the Fed's September meeting for rate cuts will only exacerbate the economic pressures on families.

And it's not just families feeling the pressure. Atlanta Fed President and FOMC member Raphael Bostic said that consumers in his region are "at (their) limit" and cannot shoulder the burden of high interest rates for much longer. Another key Wall Street analyst made the case clearly: "Waiting too long risks a higher peak in unemployment for little additional reward on the inflation front."

The lawmakers are calling for the Fed to resist partisan politics and follow the data. Economists and monetary policy guidelines are suggesting the rate should already have been cut and need to be cut at the July FOMC meeting. .

Senator Warren has been ringing the alarm bells about the serious dangers of Chair Powell's continued interest rate hikes:

• In June 2024, Senators Warren, Rosen (D-Nev.), and Hickenlooper (D-Colo.) wrote to the Federal Reserve (the Fed), urging Chair Jerome Powell to cut the federal funds interest rates from the two-decade-high of 5.5 percent.
• In March 2024, Senators Warren and Sheldon Whitehouse (D-R.I.) sent a letter to Chair Powell, expressing concerns about the damaging impact of the Fed's extreme 2022 and 2023 interest rate hikes, which have halted deployment of clean energy technologies and have undermined the Inflation Reduction Act's climate and consumer benefits. The senators called on the Fed to cut interest rates to allow for continued progress on clean energy projects and the climate and economic benefits they provide.
• In January 2024, Senators Warren, John Hickenlooper (D-Colo.), Jacky Rosen (D-Nev.), and Whitehouse sent a letter to Chair Powell, calling on the Fed to reverse its troubling interest rate hikes that have driven mortgage rates to 20-year highs and have put affordable housing out of reach for too many Americans.
• In July 2023, Senator Warren sent a letter to Chair Powell, raising concerns about the disproportionate impact of the Fed's monetary policy amid rising unemployment for Black workers.
• In May 2023, Senator Warren led lawmakers in a letter to Chair Powell, calling on the Fed to pause interest rate hikes and respect its dual mandate of maximum employment and price stability, particularly in the wake of recent turmoil in the banking system following the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank. The lawmakers expressed serious concerns that the Fed's monetary policy strategy of more rate hikes could trigger a recession, throw millions out of work, and crush small businesses.
• In March 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren questioned Chair Powell on the Fed's monetary policy plan and its projection that the unemployment rate will rise sharply to 4.6% by the end of the year if the Fed continues to raise interest rates. Senator Warren highlighted that the Fed's projections suggest that nearly 2 million people will lose their jobs, and that history shows that the Fed has a poor track record of containing moderate increases in unemployment.
• In November 2022, Senator Warren and Representative Madeleine Dean (D-Pa.) led their colleagues in sending a letter to Chair Powell, expressing concern and seeking answers about the Fed's most recent economic projections, its intentions to continue to raise interest rates at a rapid pace, and its disturbing warning to American families that they should expect "pain" in the coming months.
• In July 2022, Senator Warren published an op-ed in the Wall Street Journal warning that the Fed's decision to aggressively raise interest rates risks triggering a devastating recession.
• In June 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called out Chair Powell for the Fed's announced interest rate increases that wouldn't address the key drivers of inflation. Chair Powell confirmed that the Fed's interest rate increases will not bring down gas and food prices, two of the biggest drivers of inflation.

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