May 3, 2023 - Economy & Business

Democrats' letter calls for Fed to hold rates steady

enator Elizabeth Warren, a Democrat from Massachusetts, left, speaks with Jerome Powell, chairman of the U.S. Federal Reserve, during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington, D.C., U.S

Sen. Elizabeth Warren (D-Mass.) speaks with Fed chair Jerome Powell during a congressional hearing in 2021. Photo: Kevin Dietsch/Getty Images/Bloomberg via Getty Images

The Fed is all but certain to raise interest rates by a quarter-point Wednesday afternoon — and may signal a pause in its hiking cycle.

Yes, but: There's one powerful group demanding the central bank pause more imminently: Democratic lawmakers.

Driving the news: A group of 10 members of Congress, led by Sen. Elizabeth Warren (D-Mass.), wrote a letter calling for the Fed to hold rates steady at this week's meeting, citing the damage its moves may inflict on the labor market.

  • "[R]ecent turmoil in the banking system ... and the lagging impacts of the Fed's earlier rate hikes leave our economy even more vulnerable to an overreaction by the Fed," the group writes.

Why it matters: It's the latest sign of unease among Democrats, who have recently bashed the Fed's campaign against price pressures.

  • In the letter, the group acknowledges that the labor market has so far been resilient to the rapid tightening. They argue that the Fed's rate hikes are putting the solid job market at risk.

Between the lines: The lawmakers say inflation is well below last year's peak, and "the evidence to date suggests that progress can continue to be made without slamming the brakes on the economy and costing millions of Americans their jobs."

The bottom line: As the Fed hiked last year, the Biden administration effectively backed the central bank's fight for price stability.

  • Still, it is subject to oversight by Congress. Expect political pressure and blame games to ramp up — especially if the economy and labor market slow substantially.
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