The Federal Reserve’s Federal Open Markets Committee (FOMC) is expected to raise interest rates again this week in a bid to further reduce inflation. However, a Colorado Senator is urging the committee, which is meeting on Jan. 31 and Feb. 1, to proceed with caution.
“The Fed should pause before taking any additional action that would throttle an already fragile economy,” wrote Sen. John Hickenlooper (D-Colo.) in a Jan. 30, 2023, letter to Federal Reserve Chairman Jerome Powell.
The committee increased the interest rate from .50 percent in March 2022 and has continued the increases each month to the current 4.5 percent rate.
Federal officials have publicly stated that the rate should be raised slowly until the inflation rate is at 2 percent.
Inflation occurs when too much money is available for too few goods. This drives prices up, decreasing the currency’s buying power. Regulators try to control inflation by increasing interest rates, which increases business costs. This results in higher prices which reduces consumer spending and cools the economy.
In his letter, Hickenlooper warns that while raising the interest rate would slow inflation—currently at 6.45 percent—it could also impede recent employment gains.
He wrote that newly passed legislation is already working to shore up the economy. While recent, sharp interest rate increases have cooled inflation, continuing that pace could have a deleterious effect, according to Hickenlooper.
In his letter, he claims the Inflation Reduction Act, The CHIPS+Science Bill, and the Ocean Shipping Reform Act are “long overdue investments [that] will lower the cost of health care, prescription drugs, and energy while improving domestic supply chains and galvanizing domestic manufacturing.”
The Inflation Reduction Act calls for a minimum corporate tax, taxes on stock buybacks, and several green energy and environmental tax credits.
The CHIPS+Science Act commits $250 billion over five years to semiconductor research and production.
The Ocean Shipping Reform Act is a law written in response to supply chain issues that arose during the Chinese Communist Party Virus Pandemic. It is meant to make it easier for ships to deliver their cargo.
“The Producer Price Index has returned to pre-pandemic levels. The month-to-month consumer price index decreased by 0.1 percent,” Hickenlooper wrote.
“Inflation is at its lowest level since October 2021, and economists widely believe inflation is already or will soon be under control.”
Rate Hikes Will Add Costs
Conversely, Hickenlooper pointed to signs that segments of the economy are slowing. He said some reports of existing home sales are at a 12-year low, the job market is ailing with employers announcing layoffs, and retail spending is dropping as monthly payrolls decline.
“Further interest rate hikes will only make it more expensive for small businesses to fund their operations,” he wrote.
Philadelphia Federal Reserve President Patrick Harker has been quoted saying the interest rate should be greater than 5 percent. Christopher Waller of the Federal Reserve’s Board of Governors agreed.
In a Jan. 20 speech to the Council on Foreign Relations (CFR), Waller said the slowing economy had brought inflation down from 9 percent in June to 6.5 percent.
He pointed out that the nation’s Gross Domestic Product grew at a rate of 3.2 percent in the third quarter of last year, dropping to 2 percent in the fourth quarter. At the same time, the 12-month increase in hourly wages peaked at 5.6 percent in March 2022 but has decreased since then.
Waller told the council that part of the goal is to bring wages in line with GDP.
“Six months ago, when inflation was escalating, and economic output had flattened, I argued that a soft landing was still possible—that it was quite plausible to make progress on inflation without seriously damaging the labor market.
“So far, we have managed to do so, and I remain optimistic that this progress can continue,” Waller told the CFR.
The Epoch Times contacted the Federal Reserve and Hickenlooper’s office to request comment, but neither responded by press time.