Moderate Democrats urge Federal Reserve to move more aggressively towards tighter monetary policy to combat inflation, as a sign of their growing concern about the political consequences of high prices.
Pressure from the centrist wing of the Democratic Party on the US Federal Reserve intensified ahead of a meeting of the Federal Open Market Committee next week, during which Fed it is expected to announce a faster withdrawal of its asset purchase, setting the stage for possible interest rate increases later next year.
This reflects growing unease within Joe Biden’s party that high inflation could prove toxic to voters in the 2022 polls – and will not be contained quickly enough by his $ 1.75 billion childcare and climate change laws, whose structural reforms will in the economy have only an impact in later years.
“The Fed has to start shrinking right away, and then they have to raise interest rates. Both can be done by March, ”Jake Auchincloss, a Democrat from Massachusetts and a member of the House Financial Services Committee, who oversees monetary policy, told the Financial Times.
“I think a chair [Jay] It would be good for Powell to end a decade of easy money, ”he added.
The democratic debate on inflation continues to intensify with each new release. It’s November the consumer price index rose by 6.8 percent compared to the year before, the fastest pace since 1982.
Biden admitted on Friday that inflation was a “real blow”, although White House officials still expect prices to fall and are glad that petrol costs have started to fall.
When the U.S. president appointed Powell for a second term as Fed chairman, Biden suggested he believed he was the best person to fight inflation, but the White House did not comment on the central bank’s specific policies.
Loud support for tighter monetary policy is still relatively rare among Democrats. The party has long stressed the need for the Fed to retain as much support as possible for the recovery in order to fully fulfill its mandate to achieve full employment that would benefit all segments of the population. Some key Democrats still suggest this should be a priority.
“At this point, when workers are finally gaining bargaining power, we must continue to strive for full employment and a labor market where companies compete for workers by offering higher wages and better benefits,” said Sherrod Brown, Senate Banking Committee chairman and Ohio Democrat. in a statement to the FT.
“The Fed should ensure that our economy works for workers and their families, not for Wall Street,” he added.
But others are urging the central bank to tackle inflation more quickly.
Joe Manchin, a Democratic senator from West Virginia, is a staunch critic of the Fed’s bond buying, and Mark Warner, a Democrat from Virginia, suggested to Powell that he should accelerate the “reduction” in property purchases during a hearing last month.
“I believe that reduction and sincere acceleration can serve as an insurance policy if … . we see this potential overheating of the economy, ”Warner said Nov. 30.
Ian Katz, an analyst at Capital Alpha Partners, said the change is not surprising given the political pressures Democrats are facing. “If inflation threatens economy and the prospects of the Democrats in the election, there will be far fewer pigeons out there, ”he said.
One Democratic congressional aide in the Senate said many Democrats, like the White House, are taking inflation more seriously because they have recognized that this is a new “political moment.”
“In previous cycles, we always talked about more jobs, better paid jobs. Now we have both. But many voters do not feel it [like it]. The money in their pockets doesn’t go that far. ”
The growing democratic hawk takes various forms – including renewed criticism that loose Fed policies cause inequality. Jon Ossoff, a Democratic senator from Georgia, pressured Powell on the specific economic purpose of the bond-buying program at a time when aggregate demand is “quite strong” and capital markets are “highly liquid.”
“Isn’t this, for example, while providing additional liquidity to capital markets, exacerbating inequality by increasing the valuation of capital and assets and shifting more money into the balance sheets of large financial institutions, individuals and high net worth investors?” Ossoff asked.
Auchincloss suggested that the Fed was far better equipped than the Biden administration and Congress to fight inflation. “Fiscal policy is like an aircraft carrier, it takes a lot of time to prepare, it takes a long time to get started, it takes a long time to deploy. He is strong, but it takes some time. Monetary policy is like fighter jets. They are very skilful, “he said. “When he says he’s going to do something, he’s going to do it, but he can work on a timeline of weeks and months.”