Democrats’ Progressive Caucus Calls on Federal Reserve to Cut Interest Rates

Federal Reserve Board Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting at the Federal Reserve in Washington on Nov. 1, 2023. (Kevin Dietsch/Getty Images)

With many constituents facing a cost-of-living crisis, 23 Democrats in the House and Senate are calling on Federal Reserve Chairman Jerome Powell to meet with them and draft a plan to lower interest rates immediately.

Led by the Congressional Progressive Caucus, which includes Sen. Bernie Sanders (I-Vt.) and Sen. Elizabeth Warren (D-Mass.), the lawmakers penned a letter to Mr. Powell arguing that high interest rates are no longer needed ahead of the Federal Reserve’s Board of Governors Federal Open Markets Committee (FOMC) meeting starting March 19.

“We write to urge the Federal Open Market Committee (FOMC) to seriously consider the harmful economic consequences of maintaining excessively high interest rates for an unnecessarily long period of time,” the lawmakers said in their letter.

“While we understand that you have indicated that the March FOMC meeting will not see the federal funds rate reduced, we ask that you develop a prompt timeline for future rate reductions.”

The FOMC holds eight meetings per year. It reviews economic conditions, determines the Fed’s stance of monetary policy, and assesses the risks to price stability and economic growth.

So far, the FOMC has increased interest rates in 11 meetings since March 2022 in the name of fighting inflation, increasing the rate to 5.33 percent in July 2023. According to the Department of Labor, annual retail inflation has decreased to about 3.2 percent since February—down significantly from its July 2022 high of nearly 9 percent.

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However, that rate was higher than consensus estimates for the month as well as an increase from the 3.1 percent CPI in the month prior, drawing comments from Treasury Secretary Janet Yellen that the path to relieving price pressures will be bumpy.

Earlier this year, Federal Reserve officials said that interest rates couldn’t be reduced until inflation was closer to the central bank’s target.

According to the FOMC, raising interest rates lowers spending in an economy. With less cash being spent, the money supply tightens and the demand for goods drops, in theory making them cheaper and reducing inflation.

Meanwhile, Republicans have blamed out-of-control spending and snowballing debt of the U.S. federal government for the painful inflation figures.

Federal Reserve’s Inflation Target ‘Largely’ Achieved

According to the Congressional Progressive Caucus, the Federal Reserve’s inflation target of a 2 percent average has “largely” been achieved, falling due to supply-side bottlenecks unwinding and labor force participation increasing.

Rep. Pramila Jayapal (D-Wash.), chair of the Congressional Progressive Caucus, said in a March 18 statement that “unnecessarily high rates” and trying to keep to the 2 percent inflation target are putting economic security for everyday Americans at risk.

“They will only punish everyday Americans: exacerbating the housing crisis, hindering the deployment of clean energy, and throwing the future of the Biden recovery into uncertainty, while threatening the wages and jobs that our communities depend on,” she said.

“It’s past time for the Fed to end this squeeze on working- and middle-class families.”

The Congressional Progressive Caucus claims data over the last year show the United States may be on a faster productivity growth path, which they predict will further alleviate inflationary pressures going forward.

“None of these indicators corresponds with an overly strong labor market that could further spike inflation,” the lawmakers said in their letter.

“The more realistic concern in light of these labor-market trends is that the Federal Reserve may wait too long to lower rates and allow tight monetary policy to reduce employment and real wage growth.”

A recent study by Bankrate found that half of the loan or financial product applicants have had their applications denied since the Federal Reserve first started raising interest rates.

The Epoch Times has contacted the Federal Open Market Committee for comment.