Two US senators are urging Federal Reserve Chair Jerome Powell to cut interest rates to avoid an economic recession.
In a new letter penned directly to Powell, Democrats Elizabeth Warren (D-Massachusetts) and Jacky Rosen (D-Nevada) argue that persistent high rates are slowing down the economy and driving up the cost of housing and insurance, which the senators say are the “main drivers” of the current inflation rate.
“Shelter inflation accounts for a significant portion of the Consumer Price Index (CPI), and high interest rates are resulting in higher, not lower, shelter costs. High interest rates have driven up rental prices, mortgages, and construction costs, limiting the supply of housing and keeping prices high.
[Mark Zandi, chief economist of Moody’s Analytics], emphasized that if ‘rent for single-family homes is removed from the Fed’s preferred price measure, inflation is already below 2%.’”
Warren and Rosen also argue that auto insurance costs have risen due to a shortage of mechanics, more severe and frequent car accidents, climate change-related damage and more complex cars that are more expensive to fix.
“None of these factors are mitigated by high interest rates. In fact, the Fed’s rapid increase in interest rates in 2022 may have had the opposite of its desired effect, prompting insurers to raise premiums.”
The Fed is slated to issue its next statement on the Federal Funds Rate at the June 12th Federal Open Market Committee (FOMC) meeting. Analysts expect the central bank to keep rates the same.
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