The Fed Has Done Enough to Fight Inflation

I wrote to my Senators and Representative about the risks the Fed is seeding with increasing interest rates so quickly as they have. I sent this on Wednesday morning, March 8, 2023 after Jerome's Powell's first day of testimony to Congress. Ironically, Silicon Valley Bank failed two days later on Friday exemplifying the risks that these interest rate risks are causing.

Hi Senators Bennet and Hickenlooper - I've lived in Colorado for 13 years now and I work in the hotel investment space. It's a fascinating one because it ties together commercial real estate, job creation, construction/capital investment, and an economic and sales tax engine in the way of travel spending. What inspired me to write to you is because of the current interest rate environment induced by the Federal Reserve. I understand the need to stomp out excessive inflation. However, there are signs the Fed has already gone too far and is on the verge of breaking something in the economy. Housing is perhaps the first sign and next to come is commercial real estate and small businesses reliant on short term borrowings then a spillover from there into other parts of the economy. We will be facing another crisis on our hands if short term interest rates keep ratcheting up. In analyzing rates, if the Fed increases short term rates beyond 5%, that appears to be the breaking point like it was in 2007 when the wheels started coming off the bus leading to the 2008/2009 financial crisis. I even worry that having crossed 3-4% which inverted the yield curve in hindsight will show the Fed has already gone too far. In reading about Fed Chairman Jerome Powell's testimony before Congress yesterday, Senator Elizabeth Warren started asking some tough questions as it relates to the forecast for 2 million jobs lost and an increase in the unemployment rate. But there appears to be no questions with regards to lending and real estate industry risks, key backbones of the economy. I am watching the trends in our hotels closely. Fortunately, the hotels my company has invested in are recovering quite well from the pandemic. We are still hiring and travel demand remains robust. But even in our situation, we are finding it challenging to adequately cover debt service and meet lender coverage tests. There likely will be tidal wave of loan defaults and another banking crisis if the Fed keeps increasing short term rates. The way to control inflation is through the fiscal side in conjunction with the monetary side. The Fed has done what it can and should stop at this point. Now it's time for Congress to take over and do it's part which requires bipartisan collaboration to increase taxes and reduce spending to balance the federal budget. The days of free borrowing on the backs of international countries and American savers are over. The government now needs to live within its means like its citizens and only use borrowing for true investments that deliver a genuine economic return and payback. The history of massive deficits under both parties to fund bailouts and wars and culminating recently with Trump's tax cuts, Biden's stimulus bills, and bipartisan pandemic relief money-printing tactics to nearly every business and citizen regardless of pandemic impact are what's behind this inflation. Now it's time the House, Senate, and President to get real about all of this and get government spending and receipts back in line. Please be a leader in this regard to be the first Democrat to acknowledge that spending cuts are necessary but only if they come with tax increases from Republicans. Please also ask Powell the tough questions about the economic risks the Fed is seeding with their drastic interest rate moves. We need to stop the cycle of this country moving from financial bubble to follow-on financial crisis time and time again (on the verge of being repeated for a third time now in 25 years) induced by Fed interest rate policy. Thank you for reading and considering these concerns. I would appreciate a response as to whether you will consider spending cuts in exchange for tax increases and if you will join Senator Warren in asking the Fed the tough questions.

For my Representative, Ken Buck, being that he is a Republican, I sent the same letter but I flipped the needs to have Republicans accept raising taxes in exchange for Democrats cutting expenses.