Kennedy's Inflation Math: Fed May Have to Raise Rates 'Between 7 and 8 Percent' - and to Biden, 'Please With Sugar on Top' (May 4, 2023)

Sen. John Kennedy, R-La., did the inflation math out loud at a Senate Budget Committee hearing on the debt limit. “Did you know that since the 1950’s we have had ten periods of disinflation in America? Did you know that?” he asked Brian Riedl, a senior fellow at the Manhattan Institute [1].

“And did you know that if you look at history at all ten of these times when we had to reduce inflation, that in order to get inflation down 2 percent we had to raise on average, the Federal Reserve had to raise interest rates such that it raised unemployment about 3.6 percent,” Kennedy said [1].

Then he put the numbers together. “Then if you do the math, given that the current unemployment rate is 3 and a half percent, and the current inflation rate is 5 percent, that would indicate, would it not, that the Federal Reserve, if history is any indication, will probably have to eventually raise interest rates to between 7 and 8 percent. Is that correct?” [1]

“It could have to go that high depending on how the economy responds to current rise,” Riedl answered [1].

The video above shows the exchange at the May 4, 2023, hearing. Quotes are from the official hearing record, Senate Hearing 118-76 [1].

”Basic Economics 101”

Kennedy tied the Fed to Congress’s spending. “Now can we agree that the best way to get inflation down is to attack it on the fiscal side and the monetary side?” he asked. “Absolutely,” Riedl said [1].

“And when you attack it on the monetary side, the Federal Reserve raises interest rates, it’s trying to slow the economy. It doesn’t want to, but the way you measure the slowing of the economy is in unemployment rate,” Kennedy said. “When you attack it on the fiscal side you reduce your rate of growth of spending and debt accumulation. Did I describe that right?” “You did,” Riedl said [1].

“So is it not the case that if you vote against slowing the rate of growth of spending and debt accumulation, you’re voting to raise interest rates even higher are you not?” Kennedy asked. “Generally, I would agree with that viewpoint, yes,” Riedl said [1].

“I mean that’s just basic economics 101, right?” Kennedy said [1].

He spelled out what was at stake. “If we don’t reduce the rate of growth of spending and debt accumulation, Jay Powell is going to do what he’s got to do to get control of inflation. And he’s going to keep raising rates, and that’s going to put people out of work,” Kennedy said. “If he has to raise rates between 7 and 8 percent, then that could be six, seven, eight million people out of work.” [1]

“Please With Sugar on Top”

Kennedy opened with a message for President Joe Biden, who had agreed to meet with Speaker Kevin McCarthy. “I thought he should have done it sooner. You can only be young once, but you can always be immature, and I thought he was being a trifle immature,” Kennedy said [1].

“I hope he will negotiate in good faith. Please, please, please, Mr. President negotiate in good faith. Please with sugar on top,” he said [1].

“You don’t have to be Mensa material to understand the consequences would be terrible,” Kennedy said of a default [1].

”Before My Time”

Kennedy turned to Mark Zandi, chief economist of Moody’s Analytics. “But were you at Moody’s in the mid-2000’s when Moody’s graded a lot of these mortgage backed securities, AAA and A good as gold that promptly tanked, and almost dragged down the world economy. Were you there then? Or was that before you time?” [1]

“No. It was before my time. I sold my company to Moody’s in late ‘05,” Zandi said. “I’m glad you missed that,” Kennedy answered [1].

”The Big Ole Tax Credit”

Then he asked Abigail Ross Hopper of the Solar Energy Industries Association about electric vehicles. “I love solar energy. I just want you to know that, and I love electric cars. But I’ve got to ask you this question,” Kennedy said. “If electric cars are so swell, how come government has to pay people to drive them?” [1]

“I wouldn’t characterize it as paying people to drive them,” Hopper said. “Well sure we are. We’re giving them the big ole tax credit,” Kennedy said [1].

By the Numbers

10: periods of disinflation since the 1950s, per Kennedy [1].
3.6 percent: the average rise in unemployment Kennedy cited [1].
3.5 percent and 5 percent: unemployment and inflation at the time, per the exchange [1].
6 to 8 million: people Kennedy warned could lose jobs [1].

What Happened Next

A debt deal with spending caps. A month later, on June 3, 2023, Biden signed the Fiscal Responsibility Act, “An Act To provide for a responsible increase to the debt ceiling.” Its Division A, “LIMIT FEDERAL SPENDING,” set “DISCRETIONARY SPENDING LIMITS” [2].

The “big ole tax credit” ended. On July 4, 2025, President Donald Trump signed Public Law 119-21. Under a chapter titled “ENDING GREEN NEW DEAL SPENDING, PROMOTING AMERICA-FIRST ENERGY, AND OTHER REFORMS,” Section 70502, “TERMINATION OF CLEAN VEHICLE CREDIT,” ends the credit for vehicles “acquired after September 30, 2025” [3].

For Kennedy at another hearing the same day, see HYGO News’ page on NIH’s Lawrence Tabak.