’You’re Trying to Put People Out of Work’: Senator Kennedy Corners Fed Chair, Who Says He’s Trying to ‘Cool the Economy’

Sen. John Kennedy (R-LA) grilled Federal Reserve Chairman Jerome Powell on Tuesday about the central bank’s repeated interest rate hikes meant to “cool the economy” as Powell put it.

With inflation up 6.4% relative to a year ago and unemployment at a 50-year low, the Fed has raised interest rates to increase the cost of borrowing. This should decrease consumer spending and bring down inflation.

The Fed’s stated dual mandate is stable prices and full employment, and it seems the latter is being sacrificed for the sake of the former.

This is hardly a secret, as finance industry types have been openly endorsing this approach.

Powell testified before the Senate Banking Committee, where Kennedy got right to his point:

KENNEDY Let’s try to unpack this then. I’m not trying to trick you. You are raising interest rates. You’re raising interest rates to slow the economy, are you not?

POWELL: Yes, to cool the economy off.

KENNEDY: And one of the ways you measure your success – other than fluctuation and gross domestic product – is the unemployment rate, is it not?

POWELL: One of the measures.

KENNEDY: Ok. So, in effect – I’m not being critical – when you’re slowing the economy, you’re trying to put people out of work. That’s your job, is it not?

POWELL: Not really. We’re trying to restore price stability.

KENNEDY: No, you’re trying to raise the unemployment rate. I know you don’t like the phrase, so let me strike it. You’re trying to raise the unemployment rate, are you not?

POWELL: No, we’re not trying to raise–we’re trying to realign supply and demand, which could happen through a bunch of channels, like, for example, just job openings–

KENNEDY: Let me put it another way, ok? The Economist did a wonderful study. They looked at 10 disinflationary periods in America going all the way back to the 1950s. Disinflation is what you’re trying to do. It’s the slowing in the rate of inflation. Am I right?

POWELL: Yes.

KENNEDY: In other words, prices don’t go down, they just don’t go up as fast. Deflation is when prices actually go down. You’re trying to achieve disinflation, are you not?

POWELL: Yes, we are.

Kennedy cited data suggesting that “if history is right,” the unemployment rate would have to rise to seven percent in order to get inflation down to 4.4%.

“That’s what the record would say,” agreed Powell.

The senator further posited that for the Fed to get to its target rate of 2.2% inflation, unemployment would have to rise to north of 10%. However, Powell disputed this.

Kennedy replied by insisting the chair was simply “reluctant to admit” this is the case. He added that in addition to the Fed’s actions on monetary policy, it is incumbent on Congress and the president to enact fiscal policies that will aid in decreasing inflation, i.e., decreasing government spending.

Watch above via C-SPAN.

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