Senator Warren: Fed may tip US ‘economy into a recession’

Democratic Senator Elizabeth Warren has said she is “very worried” that the US Federal Reserve will “tip this economy into a recession.”

Warren made the remarks on Sunday after Fed Chairman Jerome Powell announced the bank would keep raising interest rates in an effort to combat inflation.

Taming US inflation will inflict "pain" on American families and businesses, Powell said on Friday in a speech to global policymakers in Jackson Hole, Wyoming.

But failure to bring prices down from their current 40-year high would be even more harmful, he added while addressing the annual gathering of central bankers.

Warren said that raising interest rates does not help solve problems with the economy caused by supply chain disruptions and worsened by the war in Ukraine.

“I am very worried about this,” the senator said. “There is nothing in raising the interest rates. Nothing in Jerome Powell’s toolbag that deals directly with those, and he has admitted as much in congressional hearings when I’ve asked him about it.”

During his keynote speech in Jackson Hole, Powell pledged the Fed will continue to act "forcefully" and keep policy tight, which is likely to slow the economy, adding that failing to do so "would mean far greater pain.”

He warned that the strong US job market will suffer in order to get prices down, calling it the consequences of the "unfortunate costs of reducing inflation."

The Fed has been campaigning to raise interest rates, and Powell stressed that the fight against inflation is not over.

"Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance," he told the gathering.

Warren said that while inflation is high, the nation has seen strong job growth and low unemployment numbers, which she said could change amid more interest rate hikes.

“Do you know what’s worse than high prices and a strong economy?” she asked the CNN host. “It’s high prices and millions of people out of work. I’m very worried that the Fed is going to tip this economy into recession.”

Inflation in the US hit a 40-year high in March and currently is hovering around 8.5 percent. In recent weeks, President Joe Biden has signaled a willingness to tweak tariffs on Chinese imports in order to ease inflation.

Economists estimate the move would not have a significant immediate effect on inflation but has the potential to bring about a full percentage point decrease in about a year.

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