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Moderate Democrats are pushing the Fed to take more aggressive monetary tightening to eliminate inflation, Which shows that they are increasingly worried about the political impact of high prices.
Before the Federal Open Market Committee meeting next week, pressure from the Democratic center on the Fed has increased. During this period Federal Reserve It is expected to announce a more rapid reduction in the scale of asset purchases, laying the foundation for a possible interest rate hike later next year.
This reflects the growing unease within Joe Biden’s party that high inflation may be harmful to voters in the 2022 midterm elections-and his $175 million childcare and climate change legislation will not be contained anytime soon, and it will have an impact on the economy. The structural reforms will only have an impact the following year.
“The Fed needs to start downsizing immediately, and then they need to raise interest rates. Both of these things can be done in March,” said Jack Okinclos, a Democrat from Massachusetts and a member of the House Financial Services Committee overseeing monetary policy. Tell the British “Financial Times”.
“I think the chair [Jay] Powell will end the decade of easy money making very well,” he added.
Every time new data is released, the Democratic debate on inflation has intensified.In November Consumer price index rises Compared with the same period last year, it increased by 6.8%, which was the fastest growth rate since 1982.
Biden admitted on Friday that inflation is “a real bump on the road”, although White House officials still expect prices to fall and are pleased that gasoline costs are starting to fall.
When the President of the United States appointed Powell as chairman of the Federal Reserve, Biden hinted that he believed he was the best candidate to deal with inflation, but the White House did not comment on specific central bank policies.
The Democrats’ verbal support for monetary policy tightening remains relatively small. The party has long emphasized that the Fed needs to support as much economic recovery as possible to fully fulfill its mission of pursuing full employment, which will benefit all people. Some key Democrats still believe this should be a priority.
“At this moment, when workers finally gain bargaining power, we need to continue to promote full employment and the job market. Companies compete for workers by offering higher wages and better benefits,” said Sherrod Brown, chairman of the Senate Banking Committee, and Ohio The Democrats said in a statement to the Financial Times.
“The Federal Reserve should ensure that our economy serves workers and their families, not Wall Street,” he added.
But there are also calls for the central bank to speed up the pace of tackling inflation.
Democratic Senator Joe Manchin from West Virginia unabashedly criticized the Fed’s bond purchase program, while Democrat Mark Warner from Virginia gave a hearing last month. It was suggested to Powell at the meeting that he should speed up the “reduction” of the scale of asset purchases.
“I think if… we see that the economy may overheat,” Warner said on November 30.
Capital Alpha Partners analyst Ian Katz said that given the political pressure facing the Democratic Party, this shift is not surprising. “If inflation threatens economy And the prospects of the Democratic Party in the election, where there will be far fewer pigeons,” he said.
A Democratic congressional aide in the Senate said that many Democrats and the White House are paying more attention to inflation because they recognize that this is a new “political moment.”
“In previous cycles, we have been talking about more jobs, higher-paying jobs. We now have both. But for many voters, this doesn’t feel like [like it]. The money in their pockets is not that big. ”
The growing Democratic hawks are appearing in many forms-including once again criticizing the Fed’s loose policies that are exacerbating the gap. Georgia Democrat Senator Jon Ossoff puts pressure on Powell on the specific economic purpose served by the bond purchase program when aggregate demand is “quite strong” and capital markets are “highly liquid” .
“For example, although it provides additional liquidity to the capital market, by pushing up stock and asset valuations and transferring more cash to the balance sheets of major financial institutions, high-net-worth individuals, and investors, isn’t this Does it increase inequality?” Osov asked.
Aukinclos said that the Fed is more capable of dealing with inflation than the Biden administration and Congress. “Fiscal policy is like an aircraft carrier, with long preparation time, long movement time, and long deployment time. It is powerful, but it takes a while. Monetary policy is like a fighter jet. They are very flexible,” he said. “When it says to do something, it will do it, but it can run on a timeline of weeks and months.”
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