Elizabeth Warren Rips Fed Chair as 'Reckless and Dangerous' Over Rate Hikes

Senator Elizabeth Warren on Sunday issued a stinging critique of the Federal Reserve amid news that it would be raising interest rates in an effort to fight inflation.

Warren made the statement via a tweet that included a link from CBS News proclaiming that the Fed "plans to sharply boost unemployment." The story references comments made by Federal Reserve Chair Jerome Powell on Wednesday about the central bank's plan to raise interest rates, which he admitted likely result in a "softening of labor market conditions." This has been interpreted to mean increased unemployment.

"Fed Chair Powell seems determined to push the economy over a cliff—even after he admitted rate hikes won't lower key prices," Warren tweeted in response to the article about Powell. "Destroying jobs and crushing wages of millions of workers is reckless and dangerous. Recession is not the solution to inflation."

The CBS News article reported that the Federal Reserve forecasts the U.S. unemployment rate to hit 4.4 percent in 2023, up from the current 3.7 percent. This would result in roughly 1.2 million people losing their jobs in the pursuit of cooling down inflation.

"I wish there were a painless way to do that," Powell said on Wednesday. "There isn't."

elizabeth warren federal reserve criticism
Above, a shot of Senator Elizabeth Warren at an event in 2020. Warren on Sunday sharply criticized the Federal Reserve's plans to squash inflation by risking unemployment. Scott Olson/Getty Images

The Fed's supposed pursuit of unemployment to fight inflation is based on the theory that with a few million more workers without jobs, they would be forced to rein in their spending habits and wage growth would stall. With companies presuming that labor costs are not rising, they might, in theory, stop raising prices on their goods, slowing inflation.

Some economists, however, doubt that this plan is necessary at the moment. Ian Shepherdson, chief economist at Pantheon Macroeconomics, predicted in a recent report that prices will drop in 2023 as global supply chains normalize. He also added that it is "not clear" why the Fed would risk raising unemployment to fight inflation if it is likely to drop soon anyway.

Claudia Sahm, an economist who previously worked with the Federal Reserve, also criticized the move in a tweet from Thursday, noting that the similarity in inflation rates between the U.S. and Germany indicates that the problem is being driven by supply-side factors and that weakening the labor market to pursue a more immediate drop in inflation would only be a temporary solution.

"A large portion of US inflation (chart) and very large portion of German inflation is due to supply side factors, Sahm tweeted. "With enough demand destruction, central banks can lower inflation now, but only temporarily and with great pain. Why do it?"

Newsweek reached out to Warren's office for comment.