Democratic lawmakers do generally not look to chasten the Fed over boosting the economy. However, Sen. Joe Manchin (D-WV) wrote to Federal Reserve Chair Jerome Powell on August 5, urging the Fed chief to start the process of cutting back on economic stimulus to deal with America’s growing inflation.
In the letter, Manchin said that he is becoming “increasingly alarmed” at continuing Fed purchases of U.S. government debt and mortgage-backed securities at a rate of at least $120 billion per month. Even though Congress has directly infused trillions into the economy in response to the COVID pandemic, the Fed has continued purchasing bonds in an attempt to further the economic recovery.
Manchin stated that the record stimulus spending has already led to the fastest growing inflation in 30 years at a time when the economy has “not even fully reopened yet.” He said that he is concerned that continued stimulus will lead to “overheating” and inflation that amounts to the taxation of working Americans.
Manchin’s letter comes as President Joe Biden is deciding whether to reappoint Powell as Fed chair. The signal is clear from the moderate wing of the Democrat Party that opposition to Powell could threaten Powell’s position.
Manchin’s public declaration is a break from the White House economic team, which continues to argue that inflation is “transitory” and trillions more in infrastructure and social spending is necessary to rebuild the economy. Treasury Secretary Janet Yellen reiterated last week that the risk of inflation is less than the risk of failing to stimulate the economy’s health.
Prices of goods and services across all industries have risen more sharply than expected in 2021. Producers and suppliers have faced significant challenges in attempting to keep up with stronger than expected consumer demand.
The Fed sent some signals last month that it was approaching the time to begin tapering asset and debt purchases. Financial markets reacted as though any slowing of monetary stimulus is still several months away.
Powell got 84 Senate votes to confirm his first appointment might mean that Manchin’s support is not critical to a second confirmation. Manchin’s letter remains the most direct critique of the Fed’s practices by any lawmaker on either side of the aisle this year.