Warren Questions Fed on Trump Tariffs Driving Fed Projection of Higher Inflation
Washington, D.C. – Today, U.S. Senator Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee questioned Federal Reserve Board of Governors Chair Jerome Powell at the Committee’s hearing on “The Semiannual Monetary Policy Report to the Congress.”
Below is the transcript of Ranking Member Warren’s questioning:
Ranking Member Warren: Thank you Mr. Chairman. So, Chair Powell, The Fed released its updated economic projections last week, and I appreciate your summary, but I want to look at the trend lines here.
The Fed's outlook on inflation, the labor market, and GDP growth have all gotten worse. Compared to your economic projections in December, the latest numbers show the Fed is now projecting higher inflation from 2.5% in December 3.1%. Higher unemployment from 4.3% to 4.5%. Lower economic growth from 2.1% projected just six months ago to 1.4 % that you are now projecting.
Chair Powell, what has changed in the last six months that has caused the Fed to forecast substantially higher inflation, higher unemployment and a lower economic growth than you did in December?
Chair Powell: Some of it is just taking signals from data reports we have seen. Some of it is people working on the possible effects in the short-term of tariffs. We have no view or wisdom of longer-term effects of trade policy. It is not our job. By the way, I should add our forecasts are generally, and in this case are very, very similar to what outside forecasters are.
Sen. Warren: I understand. I'm just using you as the gold standard here. I know it’s consistent. You mention tariffs as one of the things that has changed over the last six months, Donald Trump has become president and the economy is headed down. Not only does the fed data show slower growth and higher prices this year, it sees slower growth and higher prices over the next two years as well. The Fed sees no long-term boost to the economy or drop in inflation. In other words, no upside to Trump's chaotic tariff war or other economic policies.
Sen. Warren: Now, let's talk about what is under the hood of the Fed's economic forecast.
Chair Powell, I know a lot of different factors influence the trajectory of interest rates. Is one of those factors how quickly the federal debt grows relative to the growth economy?
Chair Powell: Not directly. We don't look at that as a factor that helps us set monetary policy.
Sen. Warren: You are not watching the ratio between the amount of the federal debt and growth in the economy?
Chair Powell: No
Sen. Warren: How fast the debt is going and how fast the economy is growing? I think I have quotes from you saying last year we don't need to pay the debt down, we don't need to balance the budget, we just need the economy to grow faster than the debt. Are you saying something different now?
Chair Powell: No, when asked and pressed I pretty much almost always say the same thing as my predecessor, which is that we are on an unsustainable path. I will say this. We do not look at federal financial policy and deficit as something that affects our month-to-month monetary decisions.
Sen. Warren: I'm trying to get the overall projection on what happened in the economy. For example, I think you have made the point that if we spend on things like childcare that could boost labor participation and GDP, that may be a time when offset the debt you incurred to do that. But, if there aren't investments like that and we are simply running up the debt, what is the impact of increasing the national debt?
I understand that you don't comment on fiscal policy, but it does affect your job which is keeping inflation under control and maximizing employment. If certain policies would materially drive up the national debt and increase the debt ratio over time, could that make it more likely we would see inflation all else being equal?
Chair Powell: I mean, theoretically, sure. Fiscal policy can add to inflation. That is, again, really not something we comment on.
Sen. Warren: I understand you don’t comment on it but I do appreciate your acknowledgment of the math here.
The Joint Committee on Taxation projects the “One, Big Beautiful bill would increase federal deficits by $4.2 trillion. According to an analysis by the Congressional budget office and Yale Budget Lab, the bill raises the debt to GDP by 24 percentage points. It slows economic growth, increases inflation, and reduces real wages. So, two of Trump's signature policies – his tariffs and his tax bill will increase costs for American families.
When America borrows money it should be for investments that Americans need like investments in childcare or housing or health care that would boost economic growth and lower cost. America should not take away health care from millions of people who need it and then borrow trillions of dollars just so that a handful of billionaires and giant corporations can get even richer.
Thank you Mr. Chairman.
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