Congresswoman Maloney Warns Federal Reserve Against Raising Interest Rates Prematurely
WASHINGTON, DC — At today’s Select Subcommittee on the Coronavirus Crisis hearing entitled “Lessons Learned: The Federal Reserve’s Response to the Coronavirus Pandemic,” Congresswoman Carolyn B. Maloney (D-NY), Chairwoman of the Committee on Oversight and Reform and senior member of the Financial Services Committee, warned Federal Reserve Chairman Jerome Powell against raising interest rates too soon, which could seriously harm economic recovery.
During her exchange with Chairman Jerome Powell, Rep. Maloney stated, “I’m very concerned that the Fed is going to raise rates too early, which would seriously harm the economic recovery. As you stated last week, much of the recent rise in inflation had actually been expected. I strongly believe the recent spike in inflation will only be temporary, and shouldn’t cause the Fed to raise interest rates too soon. In the early months of the pandemic, prices fell incredibly low, so now, a year later, the year-over-year rise in prices looks very high. But that was only because prices fell to artificially low levels last year at this time. This is something that everyone saw coming for many months, and so shouldn’t come as a surprise at all.”
Rep. Maloney then asked, “How much of the recent rise in inflation do you attribute to artificially low prices from early in the pandemic, and how much do you attribute to other effects, like supply bottlenecks pushing up prices, and a genuine rebound in economic activity?”
Chairman Powell responded, “A pretty substantial part, or perhaps all of the overshoot and inflation, comes from categories that are directly affected by the reopening of the economy, such as used cars and trucks, in particular, there’s a sort of a perfect storm of very strong demand and weak supply due to the reopening of the economy and various factors. We see airplane tickets, we see hotel prices, we see other things. So those are things that we would look to start going up and ultimately to start to decline as these situations resolve themselves. They don’t’ speak to a broadly tight economy, to the kind of thing that has led to inflation over time. I will say that these effects have been larger than we expected, and they may turn out to be more persistent than we’ve expected. But the incoming data are very much consistent with the view that these are factors that will wane over time. Inflation will then move down toward our goals and we’ll be monitoring that carefully. Of course, we’re prepared to use our tools as appropriate if that turns out not to be the case, to guide inflation to 2 percent.”
Rep. Maloney continued, asking, “Do you have any concerns with relying on traditional inflation statistics, which we know are unreliable right now, in setting monetary policy?”
Chairman Powell answered, “I think the overall point is that the data that we’re looking at in the labor market, and for inflation and for growth, it’s in such an unusual setting of reopening the economy we have to be very humble about our ability to really try to draw signal out of it and it may take some patience to see what really is happening.”
You can watch the full exchange here.