Watchdog Says the Fed, Not Inflation, Is Now the 'Biggest Threat' to the US Economy

The top economist at a progressive watchdog organization said Wednesday that the Federal Reserve has supplanted inflation as the greatest danger to the U.S. economy after new data from the Bureau of Labor Statistics showed that the Consumer Price Index fell below 3% last month—the first time it has done so since 2021.

"Inflation is no longer the biggest threat to the economy, the Fed is," said Groundwork Collaborative chief economist Rakeen Mabud, citing the central bank's persistent refusal to cut interest rates in the face of glaring warning signs throughout the U.S. economy, from the worsening housing crisis to slowing job growth. Housing costs accounted for "nearly 90% of the monthly increase" in consumer prices, according to the Bureau of Labor Statistics.

"The Fed's continued high interest rates saddle people with debt, lock them out of the housing market, and threaten their jobs," Mabud said Wednesday. "The Federal Reserve should hold an emergency meeting and cut rates immediately."

The Fed's current target interest rate range is at a 23-year high of 5.25% to 5.5%, where it has been kept for the past 12 months despite mounting calls for rate cuts from progressive lawmakers and economists as inflation continues to decline from its peak of 9.1% in June 2022.

"The Federal Reserve made a massive mistake in not cutting rates in July."

Rep. Brendan Boyle (D-Pa.), the ranking member of the House Budget Committee, said in a statement Wednesday that "the evidence is clear: Inflation is falling and wages are rising."

"It's past time for the Fed to secure this progress and begin lowering interest rates," Boyle added.

The next official two-day meeting of the Fed's policy-setting panel, the Federal Open Market Committee (FOMC), is scheduled for September 17-18. After Wednesday's inflation reading, the central bank is widely expected to enact a small rate cut at its September meeting, which will be held less than two months before the presidential election.

Donald Trump, the Republican nominee, has openly warned Powell against cutting rates prior to the election, apparently fearing the move would help Democrats.

Democratic lawmakers, for their part, have argued that a failure to cut rates "would indicate that the Fed is giving in to bullying" and "succumbing to political threats," as Sens. Elizabeth Warren (D-Mass.), John Hickenlooper (D-Colo.), and Sheldon Whitehouse (D-R.I.) put it in a letter to Powell last month.

In an op-ed for Common Dreams last week, Mabud of the Groundwork Collaborative wrote that "the Federal Reserve made a massive mistake in not cutting rates in July."

"Powell himself has admitted that interest rate hikes can't tackle the supply-side issues at the root of today's inflation," Mabud wrote. "And now the data are clear that he is taking the economy to the brink, despite low inflation and rising unemployment."

"Making people walk an economic tightrope is not the path forward to a healthy economy," she added. "The Fed has a dual mandate to maintain stable prices and full employment. It's time for the Fed to take that mandate seriously and make a large and immediate emergency rate cut."