Sherrod Brown, Chairman of the Senate Banking Committee, recently urged Federal Reserve Chairman Powell to cut interest rates at the beginning of this year, stating that high interest rates are harming small businesses and leaving many Americans unable to buy homes.
"For the working class and small businesses in the United States who have already felt inflationary pressure, higher housing costs and fewer credit channels will only make the situation worse. Maintaining high interest rates will be detrimental to American workers and their families, and will be of no use in lowering prices or promoting moderate economic growth," Brown wrote in a letter to Powell on January 30th.
"Although more measures must be taken to address the still high costs, it is becoming increasingly clear that restrictive monetary policy is no longer the right tool to combat inflation. I urge the Federal Reserve to relax monetary policy at the beginning of this year."
This Ohio Democratic senator is running for re-election in 2024, and his letter was sent at a time when the Federal Open Market Committee (FOMC) began a two-day congressional session on Tuesday. The market generally expects that Federal Reserve officials will maintain interest rates in the range of 5.25% to 5.5% at this meeting, the highest level in 22 years.
Federal Reserve policymakers predicted in December last year that the benchmark interest rate would be lowered to the range of 4.5% to 4.75% by the end of this year. But officials have been trying in recent weeks to suppress optimistic market expectations that interest rate cuts will soon come.
Democratic lawmakers are exerting intense pressure on Powell
Powell is facing increasing pressure from within the Democratic Party to focus more on the economy during the US election year.
Several Democratic senators, led by Elizabeth Warren, urged Powell to start cutting interest rates as soon as possible in another letter to the Federal Reserve this week to help lower housing costs.
Warren and Democratic senators John Hickenlooper, Jackie Rosen, and Sheldon Whitehouse wrote in a letter on January 28th that high interest rates have exacerbated the crisis for the American people in terms of housing access and affordability. We urge you to consider the impact of the Federal Reserve's interest rate decision on the real estate market and reverse the situation where too many people cannot afford housing due to interest rate hikes.
The Federal Reserve has aggressively raised interest rates in the past two years in an attempt to cool rapidly rising inflation. This led to the effective interest rate for 30-year mortgage loans exceeding 8% last year, but since then, the rate has fallen from its peak.
In December, the personal consumption expenditure (PCE) price index, a measure of inflation in the United States, has fallen to 2.6%, but still exceeds the Federal Reserve's target of 2%.
Brown blames inflation on corporate price hikes and states that high interest rates prevent Americans from owning homes and harm small businesses.