Groundwork’s Rakeen Mabud Ahead of Powell Testimony: “The Fed’s rate hiking campaign was deeply flawed”

Groundwork’s Rakeen Mabud Ahead of Powell Testimony: “The Fed’s rate hiking campaign was deeply flawed”

With Federal Reserve Chair Jerome Powell scheduled to testify before the House Financial Services Committee (Wednesday) and Senate Banking Committee (Thursday), Groundwork Collaborative’s Chief Economist Rakeen Mabud commented on his forthcoming testimony:

“After 19 months of prices coming down from their peak and over two years of historically low unemployment, it’s clear we didn’t need mass joblessness to lower inflation. The Fed’s rate hiking campaign was deeply flawed.

“Congress must confront Chair Powell with tough questions about why he hasn’t reversed course and moved to cut interest rates.”

Email press@groundworkcollaborative.org to speak with one of Groundwork’s experts about Chair Powell’s testimony and the need for swift rate cuts in 2024. 

Background

• Chair Powell said at his FOMC press conference in January, “whereas a year ago, we were thinking that we needed to see some softening in economic activity—that hasn’t been the case. I think, at this point, we want to see strong growth. We want to see a strong labor market… We’re looking for inflation to continue to come down, as it has been coming down for the last six months.” Chair Powell has shifted the goalposts because his initial theory of inflation has been disproven. He needs to change course.

• Unemployment has been at or below 4% for 26 months and inflation has fallen from its peak for more than 18 months. Paired with strong GDP growth, this evidence suggests that interest rate hikes have not been responsible for lowering inflation. We never had to choose between low inflation and low unemployment.
• Now that inflation is near the Federal Reserve’s 2% target, Chair Powell and his colleagues must cut rates. The longer that rates stay high, the higher the risk of spikes in unemployment that put millions of people out of work.
• Today’s economy should not be taken for granted. Monetary policy operates on a lag and keeping rates higher for longer risks the reversal of the progress our economy has made over the last three years.
• Higher interest rates are also stymieing our clean energy transition. For example,  in offshore wind, an estimated 60% of cost increases have been caused by interest rates.