Elizabeth Warren’s Fixation on Jerome Powell

Economic conditions change, but Senator Elizabeth Warren’s verdict remains the same: Federal Reserve chairman Jerome Powell wants to tank the economy.

This is not hyperbole. Warren believes that Powell is “trying to drive” the economy into recession. “I think he’s a dangerous man to have in this job,” the senator told CNN’s Jake Tapper. Give Warren points for consistency. Warren has sounded the alarm over the Fed’s “Republican chair” and his “Republican majority at the Federal Reserve” for years — and specifically over his inclination to “deregulate Wall Street.”

Back in 2021, however, Warren’s objections to Powell’s renomination to lead the Fed had nothing to do with the cause of the current volatility in the banking sector: Interest-rate hikes designed to curb inflation. Indeed, “Warren refrained from lobbing additional criticism at Powell during the hearing,” Roll Call reported at the time, “instead focusing her time on questions about the role of corporations in rising prices, climate change and on the Fed’s ethics policies.”

It’s not clear that Warren is all that interested in, for example, the conditions that brought down Silicon Valley Bank. SVB “had a whole lot of bonds — both treasury securities and mortgage bonds — so when the Fed raised interest rates to try to reduce inflation, the value of all of those bonds went down,” Stanford University management and finance professor Darrell Duffie told the Washington Post. “It’s simple: When interest rates go up, the value of bonds go down.”

Was it unwise for SVB to invest as heavily as it did in fixed-rate securities? Perhaps. But, as “securities” implies, these aren’t typically risky investments. Maybe SVB should have seen interest-rate hikes coming long before they undermined the bank’s position, but it certainly didn’t receive that signal from the likes of Elizabeth Warren. She devoted most of her energy to insisting that inflation had reached a four-decade high not because the federal government engaged in a manic bout of deficit spending but because greedy corporations hiked their prices, for no discernible reason.

“Big Oil executives are taking advantage of the pandemic to boost their profits,” Warren wrote in December 2021. “Giant grocery store chains force high food prices onto American families while rewarding executives & investors with lavish bonuses and stock buybacks,” she continued. “Families are rightly upset that the price of meat has gone through the roof. Who’s to blame?” Warren insisted: “Meatpacking monopolies that are using inflation as cover to raise prices and make record profits.” Don’t read that sentence too closely if you value your sanity.

Suppose that Warren genuinely believed all this. If that’s the case, it’s understandable that she wouldn’t grasp why the Fed is taking calibrated measures to restore price stability. Given her academic pedigree, however, that’s hard to believe.

Powell is in a real bind, forced to choose between the absolute imperative of controlling inflation and the unthinkable prospect of further undermining banks that “bulked up on bonds and other fixed-rate investments like mortgage-backed securities,” fueled by pandemic-era policies such as Joe Biden’s stimulus checks.

As Washington Examiner‘s Tiana Lowe observed, Warren inadvertently let slip the true cause of her pathological hostility toward Powell during his recent questioning before the Senate Banking Committee. “Chair Powell,” she asked, “if you could speak directly to the 2 million hardworking people who have decent jobs today who you’re planning to get fired over the next year, what would you say to them? How would you explain your view that they need to lose their jobs?” Lowe correctly noted that this is not Powell’s job. Indeed, the Fed’s independent stewardship of American monetary policy insulates it from political questions like these. It’s that independence that Warren cannot tolerate.

The Fed has hard choices to make, and maybe it should have made them sooner than it has. But Powell is not the author of America’s precarious fiscal position. Its authors are in Congress and the White House.