May 23, 2022

ICYMI: Toomey Says Fed Must Stay Course Despite Recession Risk

Washington, D.C. – In case you missed it, U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) today joined Bloomberg TV live from the World Economic Forum in Davos. In an interview with Tom Keene and Lisa Abramowicz, Senator Toomey discussed the importance of advancing free trade agreements and the need to rein in 40-year high inflation.

Click here to watch the interview

On the possibility of the Fed changing course due to recession risk:

“I don’t think a recession is inevitable. It’s probably a little more likely than not, but it could be mild. It could be brief. Unemployment could rise modestly from the quite low levels that they’re at right now. But we never get back to really strong growth and a really good opportunity unless we get stability in the dollar. We're not there right now. That's got to be exercise number one for our medium and long term prosperity.”

“We've got to get back to normalize the interest rates, normalizing the inflation level, and then we can have strong growth again.”

On inflation:

“When we had the shutdown in 2020 from the pandemic, I think it's fair to say we lost about $2 trillion of economic activity, so we dug a $2 trillion hole. We filled it with $6 trillion of spending. We goosed demand way beyond where it would have been at a time when supply was constrained. Meanwhile, the Fed, I think, was throwing gasoline on this fire. Ever since the pandemic lockdowns continued with emergency policy long after the emergency passed. I think the Fed has gotten the joke and has made a big pivot. I think they're committed to see this through. And what we've got to do is stop the wild spending that's been going on.”

"The Fed's got to do its job. It's got to stay this course. With negative real interest rates as negative as they are, I don't think we get there. But the market is doing a lot to help, right? The backup in the bond market, the strength of the dollar in the currency markets, all of that is at least disinflationary, if not deflationary. Meanwhile, we started to see slight declines in consumer purchases. Our big retailers have seen nominal growth, but not real growth. So that tells me there's demand destruction."

“The Fed has to stay the course here . . . the Fed blew this badly. They had a paradigm that guaranteed that they would be behind the curve, and they were. Now they get it. I don't think this Fed wants to be the Fed that brings back enormously problematic inflation for long."

On the Biden administration’s trade policy:

"The problem is President Biden has been a complete extension of the Trump administration on trade. Consider the only free trade agreement under Trump was to renegotiate NAFTA in a way that would diminish trade. We've never done that before. And, under President Biden, not a single free trade negotiation underway now a year-and-a-half into his administration. He hasn't lifted all the 232 tariffs. He's resisting a corporate exemption process on 301 tariffs. So, no, I think the administration has been an extension of the Trump administration on trade.”

“Previously Democratic presidents, whether it was Barack Obama or Bill Clinton, were pro-trade. We've lost that now. And so we've really lost the pro-trade consensus."

To watch Ranking Member Toomey’s full interview with Bloomberg TV, click here.