Sen. Elizabeth Warren (D-Mass.) told Federal Reserve Chairman Jerome Powell that he must be careful not to “tip the economy into a recession” with interest rate hikes.
Warren, during a Senate Banking Committee hearing on Wednesday, explained how rate hikes to help address rising U.S. costs could send the economy off a “cliff”, CNN reported.
The Federal Reserve last week raised its key rate by three-quarters of a point, its biggest hike since 1994.
This decision, intended to counter inflation by making it more expensive to borrow money, raised fears of a potential slowdown in economic activity.
Treasury Secretary Janet Yellen also said she believed economic activity would slow. However, she said she doesn’t think a recession is “inevitable”.
Warren told Powell, “Inflation is like a disease, and the medicine has to be tailored to the specific problem or you could make it worse.”
“Right now the Fed has no control over the main drivers of rising prices, but the Fed can slow demand by laying off a lot of people and making families poorer.”
Warren asked what was worse than high inflation and low unemployment, then gave Powell an answer: high inflation with a recession and millions out of work.
“I hope you think about it before you knock this economy off a cliff,” she said.
You can watch an excerpt from Warren’s address to Powell below.
Powell said the Federal Reserve was “not trying to cause” a recession and doesn’t think it will need to cause one.
Economists polled by The Wall Street Journal predicted that the probability of a recession next year is 44%, down from 28% in April.
The newspaper called the percentage “a level typically seen only at the edge or during actual recessions.”
The Huffington Gt