Congressman Ro Khanna wants Federal Reserve Chairman Jerome Powell to apologize for the central bank’s handling of inflation.
“I blame the Fed and I blame Powell for mismanaging the situation in the first place,” the Democratic Rep. told CNN in a phone interview. “He should take accountability that he messed up.”
Echoing concerns voiced by Massachusetts Senator Elizabeth Warren, Khanna said he is worried the Fed will now overcompensate by raising interest rates so aggressively that it tips the economy into recession.
“Now I’m concerned they will go too far the other way,” the progressive from California said, describing what he called the Fed’s “failed policy.”
The criticism shows how the Fed has come under fire from some on the left for the high cost of living that threatens to hurt Democrats at the ballot box this fall. Inflation, which is near a 40-year high, is among the top concerns of voters.
In particular, Khanna questioned the wisdom of the Federal Reserve’s bond buying program continuing into early 2022. That program included buying tens of billions of dollars of mortgage bonds each month — purchases that stimulated an already overheating housing market by depressing borrowing costs.
“Why was he buying mortgage-backed securities for so long? Had they stopped doing that early on we wouldn’t be in the situation we are in,” Khanna said. “The Fed hasn’t gotten the blame they deserve.”
The Fed reversed course last fall, speeding up its tapering of bond purchases. Now, the Fed is swiftly shrinking its massive balance sheet, allowing up to $95 billion of bonds to roll off its balance sheet.
“Powell should start out by saying, ‘I am part of the reason we have inflation and it wasn’t President Biden,’” Khanna said.
Of course, some economists argue the Biden administration’s American Rescue Plan may have contributed to high inflation, though there remains a lot of debate over this issue.
The Federal Reserve declined to comment, but Powell has previously conceded that in hindsight the Fed should have shifted into inflation-fighting mode sooner. “Hindsight says we should have moved earlier,” Powell told lawmakers in March.
Mary Daly, president of the San Francisco Federal Reserve Bank, acknowledged on Tuesday that people are “suffering from the indignity of high inflation.”
“They earn their living, they go to the store, and they can’t afford the things they could afford last month,” Daly told CNN’s Poppy Harlow.
The San Francisco Fed president stressed that the central bank is committed to getting inflation under control by raising interest rates to “restrictive” levels that will slow demand and lift the unemployment rate modestly to around 4.5%. But Daly added that Fed officials aren’t trying to cause mass unemployment.
“We don’t want to throw millions of Americans out of work,” Daly said.