On 3/7/2023, Republican Sen. John Kennedy of Louisiana asked Fed Chair Powell, “I’m not being critical — When you’re slowing the economy, you’re trying to put people out of work. That’s your job, is it not?” asked Sen. John Kennedy (R-La.) in Senate Banking Committee hearing. “Not really,” Powell replied. “We’re trying to restore price stability,” adding that an increase in job openings could also show the needed realignment in labor supply and demand.
Kennedy noted that historical patterns would imply that joblessness would need to jump well above the 4.6% Fed officials now expect in order to bring inflation down to 2%.
Powell acknowledged “that’s what the record would say” but argued this time could be different.
Republicans focused on whether energy policy was restricting supply and keeping prices higher than needed, and whether restrained federal spending could help the Fed’s cause.
“The only way to get this sticky inflation down is to attack it at the monetary side and the fiscal side. The more we help on the fiscal side, the fewer people you will have to throw out of work,” said Senator John Kennedy, a Republican from Louisiana.
“It could work out that way,” said Powell, who at a separate point in the hearing agreed with Democratic lawmakers’ assertions that lower corporate profits could help lower inflation, and with Republicans’ arguments that more energy production could help lower prices.
“It’s not for us to point fingers,” the Fed chief said.
In theory, the labor market could come into balance, for example, through fewer job openings and slower hiring rather than outright job losses. The problem is that, so far in 2023, it just isn’t happening. And the longer it takes, the more likely the Fed is to see an old-fashioned recession, with all the economic pain that entails, as necessary.
Powell’s remarks, virtually assuring that Fed officials will project a higher endpoint for the central bank’s benchmark overnight interest rate at the upcoming March 21-22 meeting, sparked a quick repricing in bond markets as investors boosted bets that the Fed would approve a half-percentage-point rate hike when they meet in two weeks.
The Fed’s policy rate is currently in the 4.50%-4.75% range. As of December, officials saw that rate rising to a peak of around 5.1%, a level investors expect may move at least half a percentage point higher now.
JOHN KENNEDY: When you’re slowing the economy, you’re trying to put people out of work. That’s your job. Is it not?
JEROME POWELL: Not really. We’re trying to restore price stability.
JOHN KENNEDY: No, you’re trying to raise–
JEROME POWELL: Not wages.
JOHN KENNEDY: You’re trying to raise the unemployment rate.
JEROME POWELL: So there are a lot of–
JOHN KENNEDY: I know you don’t like the phrase, so let me strike it. You’re trying to raise the unemployment rate, are you not?
JEROME POWELL: No, we’re not trying to raise it. We’re trying to realign supply and demand, which could happen through a bunch of channels, like, for example, just job openings.
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Kennedy: you’re trying to put people out of work, more we help on the fiscal side, the fewer people you will have to throw out of work