WASHINGTON — The number of unemployed will need to roughly double for a couple of years before nation’s red-hot economy cools off enough to bring inflation under control, U.S. Sen. John N. Kennedy quoted Harvard economists as having predicted, during a Senate Banking Committee hearing last week.
Federal monetary officials agreed, kind of.
“I think we’re going to see unemployment go up but I don’t have a precise number here,” replied Michael S. Barr, vice chair for supervision of the Board of Governors of the Federal Reserve System.
“If Congress cooperated and stopped spending money like it was ditch water, the Fed wouldn’t have to raise rates as high,” said Kennedy, R-Madisonville.
Unemployment rates are hovering around 3.7%. Federal Reserve short-term interest rates have increased from near zero to about 4% and likely will go up again in December. The inflation rate is down but still at 7.7%.
Many Republicans blame the several trillion dollars approved in the past year by the Democrat-controlled Congress for fueling some of the highest inflation rates in the past 40 years. Democrats counter that as bad as the inflation is, it could have been worse had the moribund economy not received a jump start to get business going after being shut down by the pandemic.
“The first thing we have to address is inflation and cost of living,” Kennedy said after the hearing.
He says going back to the 1950s, taming inflation requires less spending coupled with fiscal measures such as higher interest rates and unemployment. “That means Congress, in my judgment, can’t just spend money to stimulate the economy and expect the Federal Reserve to fix that,” Kennedy said.
Republicans campaigned on restricting the amount of money going out from measures approved by Democrats plus reducing government spending on programs like Medicare and Social Security. Had midterm elections gone as the GOP had hoped, that’s exactly what would have happened.
But Democrats held their majority in the Senate and limited Republicans to a much thinner majority in the House.
All of which underlie the fight that will embroil the nation between Thanksgiving and Christmas.
U.S. Treasury Secretary Janet L. Yellen wants Congress to raise the debt limit to help pay the federal government’s bills that become due in December.
The debt limit is how much money the federal government can borrow to pay its existing bills. Congress raised the debt limit by $2.5 trillion in December 2021, to about $31.4 trillion. There’s still enough room under that cap to borrow more money for several months into 2023.
If Congress doesn’t approve paying its bills, the federal government will shut down, as has happened 10 times in the past 40 years. That means soldiers aren’t paid, parks and museums are closed, and services are suspended. The last shutdown was for 35 days over the 2018-2019 Christmas and New Year’s holidays and wound up costing the federal government an additional $5 billion.
It’s must-pass legislation, which gives the minority party in government a chance to leverage a concession or two out of the majority.
Some Republicans would just as soon pass a resolution in December to pay the immediate bills, then wait until the new year — when the GOP takes control of the House — before tackling the debt limit. That timeline allows the GOP greater flexibility to attach spending cuts to any increase in the cap for borrowing.
But U.S. Senate Majority Leader Chuck Schumer, D-New York, said last week he wants to address the debt limit during time left for the lame-duck Congress, when the majority Democrats have more say in protecting their programs.
Though this fight likely will take place while Democrats hold the upper hand, Republicans remain concerned about the linkage between spending, inflation and the debt.
“Interest on the debt alone is going to be the fourth highest expense annually and the trajectory is frightening. We all really feel like we have to do something,” said Louisiana U.S. Rep. Mike Johnson, R-Benton. At the same time, the country has to pay its bills.
As vice chair of the Republican Conference, which represents the GOP members in the U.S. House, Johnson is in charge of coordinating the Republican House’s message.
“You probably got a shot at one issue, and so there has to be agreement among the Republicans on what that issue is going to be and I don’t what that’s going to be yet,” Johnson said.