Senator Elizabeth Warren and Fed Chairman Jerome Powell clashed at a Senate hearing Tuesday over the central bank’s rate hiking campaign.

Warren (D-MA) accused Fed of intentionally seeking to raise the unemployment rate to slow the economy in order to bring down inflation, pointing to projections from Fed officials that show unemployment rising one percentage point to 4.6 percent by the end of this year.

“In December, the Fed released its projections on the state of the economy under your monetary plan. According to the Fed’s own report, if you continue raising interest rates as you plan, unemployment will be 4.6 percent by the end of the year, more than a full point higher than it is today,” Warren said. “Chair Powell, if you hit your projections, do you know how many people who are currently working, going about their lives, will lose their jobs.”

“I don’t have that number in front of me,” Powell answered.

“It’s just a math problem,” Warren said.

“I will say it’s not an intended consequence,” said Powell.

“But it is. It’s in your report. And that would be two million people who would lose their jobs. People who are working right now, making their mortgages,” Warren said.

Warren described the Fed’s eight hikes over the past 12 months as “the most extreme rate hike cycle in 40 years.” The Fed last year raised interest its interest rate target from a range of zero to 0.25 percent to a range of 4.25 to 4.5 percent. At the start of last month, it raised its target another 25 basis points to 4.5 percent to 4.75 percent.

Warren said that the Fed’s was misunderstanding inflation, arguing that this had rendered the Fed’s rate hikes ineffective.

“And maybe the reason for that is that other things are also keeping prices high, things you cannot fix with higher interest rates. Things like price gouging, and supply chain kinks, and a war in Ukraine,” Warren said.

In fact, most recent economic research has found that supply chains and the war in Ukraine are playing only a minor role in inflation in the U.S. now. Excessive demand is now the biggest contributing factor, studies have found. Few economists think price gouging is a significant contributor to inflation.

The questions and answers were part of Powell’s semiannual testimony to Congress about the economy and monetary policy. On Tuesday, Powell was appearing before the Senate Banking Committee. On Wedensday, he will appear before a House panel.

“So, Chair Powell, if you could speak directly to the two million hard working people who have decent jobs today, who you are 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 job?” Warren asked.

“I would explain to people more broadly that inflation is extremely high and it is hurting the working people of this country badly. All of them. Not just two million of them but all of them are suffering under high inflation. And we are taking the only measures we have to bring inflation down,” Powell said.

“And putting two million people out of work is just park of the cost and they just have to bear it?” Warren said.

This prompted Powell’s most pointed response. “Will working people be better off if we just walk away from our jobs and inflation remains five, six percent?” Powell asked.

That was followed by Warren pointing out that in each of the periods in which unemployment has climbed by one percent, a recession has followed.

This was followed by another heated exchange, in which Warren likened the Fed’s economic plans to a runaway train.

 

Warren: Then the question becomes, we’ve got two million people out of work. Can you stop it at two million people. History suggests that the Fed has a terrible track record of containing modest increases in the unemployment rate. Once the economy starts shedding jobs, it’s kind of like a runaway train: it’s really hard to stop. In fact, in 11 out of the 12 times that the unemployment rate increased by a full percentage point in one year, unemployment went on to rise another full percentage point on top of that. If that’s what happens this time, we’d be looking at at least three and half million People who would lose their jobs.

So, Chair Powell, if you reach your goal and two million people get laid off by the end of this year and then—just like in 11 out of 12 times that unemployment has risen by a point in a single year it keeps on rising, and then we’ve got two and half million people out of work, we’ve got three million people who get laid off, we’ve got three and half million people who get laid off, what’s your plan?

Powell: Right now the unemployment rate is 3.4 percent, which is the lowest in 54 years. We actually do not think we will need a sharp or enormous increase in unemployment to get inflation under control.

Warren: I’m looking at your projections. Do you call laying off two million people this year not a sharp increase in unemployment? Explain that to the two million families who are going to be out of work.

Powell: We’re not targeting any of that. But I would say that even four and a half percent unemployment is well better than most of the time for the last 75 years.

Warren:  In other words, you don’t have a plan to stop a runaway train if it occurs. Chair Powell, you are gambling with people’s lives. And there’s a pile of data showing that price gouging, and supply chain, and the war in Ukraine are driving up prices. You cling to the idea that there’s only one solution—layoff millions of workers.

Warren concluded by seeming to call for Powell to step aside as head of the central bank.

“We need a Fed that will fight for families. If you are not going to lead that charge, we need someone at the Fed who will,” Warren said.