Democratic senators call on Fed to cut interest rates over high housing costs

Several Democratic senators on Sunday called on the Federal Reserve to cut interest rates, arguing that rate cuts are “exacerbating this country’s persistent crisis in housing access and affordability.”

In a letter to Federal Reserve Chairman Jerome Powell, Sen. Elizabeth Warren (D-Mass.), Sen. John Hickenlooper (D-Colorado), Sen. Jacky Rosen (D-Nevada), and Sen. Sheldon Sen. Whitehouse (D) said the central bank’s decision to rapidly raise interest rates has resulted in higher costs for homebuyers and renters and a lack of new construction.

“As the Fed considers its next actions in the new year, it will consider the impact of its rate decisions on the housing market and reverse onerous rate hikes that have put affordable housing out of reach for too many. We urge you to do so,” the group wrote in Sunday’s letter.

The Fed repeatedly raised interest rates from 2022 to 2023 in an effort to curb inflation, and the inflation rate reached 9.1% in June 2022, the highest level in 40 years.

Inflation has since slowed significantly, with consumer prices rising just 3.4% in December from a year ago, and the central bank has held off on raising interest rates for the past three consecutive meetings.

While Democratic senators acknowledged the Fed’s decision to keep interest rates on hold in recent months, they noted that interest rates remain “low for many American families who already cannot afford to pay rent or buy their first home.” It’s too expensive,” he warned.

Mortgage rates tend to track interest rates and have risen over the past two years. In late October, the average interest rate on a 30-year fixed mortgage rose to nearly 8%, the highest level in 20 years. After that, it decreased to an average of 6.69%.

Rising mortgage rates are raising costs for homeowners and discouraging first-time homebuyers from remaining in the rental market, the senators said.

However, they suggested that high interest rates are also leading to higher rental costs, as landlords pass on the costs of rising mortgage rates to tenants.

Democratic senators also warned that this lack of affordable housing “places a disparate burden on the shoulders of Black and Hispanic households.”

The Fed committee responsible for determining monetary policy is scheduled to meet later this week. Most Fed officials are expected to keep rates unchanged at their January meeting, but most Fed officials said in December that they expected at least two rate cuts in 2024.