September 02, 2019
New York Daily News, September 1, 2019
The Federal Reserve Board chair might seem an odd pick of a person to honor on Labor Day, but he really does deserve some recognition. In addition to dealing with incoherent tirades from the whiner-in-chief, Jerome Powell has led a hugely important shift in the focus of the Fed.
Powell has explicitly made the plight of the poor and working-class part of the Fed’s agenda. He began his speech at the Fed’s recent annual meeting in Wyoming by noting the unemployment rate for people of color, increasing wages for those at the bottom end of the wage distribution, and efforts by employers to offer training to attract workers with fewer skills.
It is almost inconceivable that Powell’s predecessors would have begun an important talk on monetary policy this way. In the past, monetary policy was a story about inflation and the risks of future inflation; the prospects of the disadvantaged did not figure into the picture.
Of course, Powell did not get to this place on his own. There was a concerted effort by the Fed Up Coalition, organized by the Center for Popular Democracy, to force the Fed to broaden its focus. This coalition included members of labor unions and community groups across the country. I am proud to have been able to work with Fed Up, along with a number of other progressive economists.
Fed Up organized meetings with then-chair Janet Yellen, as well as with presidents of the 12 district banks and other members of the board of governors. The message we tried to send was that the Fed’s decisions on interest rates had a very direct impact on the lives of people in disadvantaged areas.
The unemployment rate for blacks is typically twice the unemployment rate for whites. For black teens, the ratio is close to six-to-one. Unemployment for Latinos tends to be roughly one-and-a-half times the unemployment rate for whites. This means that even small changes in the overall unemployment rate, which is usually close to the unemployment rate for whites, have a large impact on the employment prospects for more disadvantaged groups.
We also pointed out that wage growth for these groups largely depends on the strength of the overall labor market. Those higher up the wage ladder may have enough bargaining power to grow their paychecks even in a weak labor market. But, for those at the bottom end of the ladder, a low unemployment rate is an essential component of their bargaining power.
Fortunately, Yellen, Powell and others at the Fed took these arguments seriously. It may seem hard to believe today, but back in 2014 there were many economists, including many at the Fed, who wanted the Fed to raise interest rates and slow the economy when the unemployment rate was still over 5%.
They argued that if the unemployment rate fell below that rate, inflation would pick up, and then the Fed would then have to raise interest rates rapidly to slow it. Fed Up insisted that there was little evidence that lower rates of unemployment would lead to any sharp spike in inflation. We reasoned there was little risk from delaying rate increases and allowing the economy to continue to expand at a healthy pace and for unemployment to fall further.
That reasoning turned out to be right. Millions more people have jobs this Labor Day than would have been the case if the inflation hawks had carried the day. As Powell noted in his opening comments, wages have been rising faster than prices for those at the bottom of the wage ladder. And employers are making efforts to recruit people, such as those with criminal records, who they otherwise would not have been interested in hiring.
None of this takes away from the hardships that tens of millions of low- and middle-class people still face. A few moderately good years does not reverse decades of upward redistribution and an even longer legacy of slavery and racism. But we should welcome real improvements when they occur, and Powell deserves some of the credit.