JACKSON HOLE, Wyo. — Liberals helped install Janet Yellen as the first Democrat to lead the Federal Reserve in nearly three decades. But now, halfway through her tenure, they are turning into some of the central bank’s sharpest critics.
Yellen won the backing of liberals during her nomination three years ago to one of the most powerful positions in the global economy. They admired her early warnings of the financial crisis and were heartened by her staunch support of central bank efforts to reduce unemployment.
Since then, however, Yellen has begun the process of puling back the Fed’s unprecedented stimulus of the economy — causing concern among liberals worried it will upset a fragile recovery. At congressional hearings, Democratic lawmakers have pushed back against the Fed’s plans to raise interest rates even though unemployment among people of color remains high and wage growth is still relatively weak. More than 100 House members and nearly a dozen senators recently sent Yellen a letter asking why there were so many bankers — and so few women and racial minorities — in the Fed’s top ranks.
And as Yellen and her colleagues gathered Thursday for their annual economic conference here in the shadow of the majestic Grand Tetons, they were greeted by a towering banner reading “Full Employment 4 Black + Brown” and demonstrators chanting, “Whose Fed? The people’s Fed!”
“There is still a lot of hope that Janet Yellen is more ally than adversary,” said Josh Bivens, research and policy director at the Economic Policy Institute, a left-leaning think tank that was involved in the protest. “But we also realize that the Fed has a lot of cross-cutting political pressures.”
In a speech Friday, Yellen suggested that the Fed is moving closer to raising rates again, despite liberal objections. She argued that the job market is improving, even though broader economic growth has been disappointing. And she said the central bank is nearing its goals of maximizing employment and keeping prices stable.
"I believe the case for an increase in the federal funds rate has strengthened in recent months," Yellen said.
The Fed fiercely defends its decisions from political interference. Setting interest rates is the key lever the central bank uses to steer the economy: Raising its benchmark rate generally encourages savings rather than spending, slowing down an overheating economy. Low rates make borrowing money more attractive, boosting growth.
During the long recovery from the Great Recession, the central bank kept its benchmark interest rate at virtually zero and pumped trillions of dollars into the economy in hopes of fostering faster growth. Republicans lambasted the effort as creating potentially dangerous imbalances in the financial markets. Democrats backed the moves as essential to ensuring the nation did not slip back into recession.
But the dynamic has shifted since late last year, when the Fed, under Yellen’s leadership, raised rates for the first time in nearly a decade. Liberal economists — including some within the central bank — worried that the move was premature. Democrats who had hoped Yellen would keep the spigot of easy money flowing were getting worried.
So activists at the Center for Popular Democracy, a coalition of liberal groups, organized workers to protest in Washington and at the central bank’s regional branches across the country, then reached out to lawmakers and liberal economists to amplify their message. Seeded with money from Silicon Valley, the two-year-old organization has turned the effort, known as Fed Up, into a powerful vehicle for the liberal critique of the central bank.
Nobel Prize-winning economist Joseph Stiglitz, one of Yellen’s friends and boosters, joined the group’s demonstration here in Wyoming last year. Fed Up is also taking aim at the lack of diversity in the top rungs of the central bank and is pushing to remove bankers from the Fed’s boards of directors — a proposal backed by Democratic presidential nominee Hillary Clinton. Activists worked with Rep. John Conyers, a Democrat from Michigan, to create a “Full Employment” caucus within the House, urging the central bank not to raise rates until the unemployment rate falls to 4 percent for all races.
During Yellen’s appearances on Capitol Hill, Fed Up members donned green shirts with the slogan “Whose Recovery?” and filled the seats behind her. Democratic lawmakers echoed their dissatisfaction from the dais.
“The Fed should be using its economic expertise to highlight the long-term devastating impacts of failing to provide the opportunity for the skills needed for the economy of the future,” Sen. Jeff Merkley of Oregon said this summer. “But I don't hear the Fed talking about that.”
The Fed has come under frequent fire from both sides of the aisle since its founding in 1913. Most recently, Republicans and Democrats have excoriated the Fed for lax regulation of banks before the 2008 financial crisis and its subsequent bailout of those same institutions. Lawmakers have repeatedly called for greater transparency at what had historically been a secretive central bank.
But the new unrest among liberals is striking because it was progressive lawmakers who helped clear the way for Yellen’s nomination to lead the central bank. Merkley, in particularly, was instrumental in scuttling a rival bid for the job from former treasury secretary Larry Summers, who was President Obama’s favored candidate. Liberal Democrats opposed Summers’s role in deregulating large banks during the 1990s and his controversial comments about women in science that contributed to his resignation as president of Harvard University.
Yellen, on the other hand, is the first woman to lead the Fed in its 100-year history. She was among the first officials at the central bank to warn that a bust in the housing market could cascade through the rest of the economy. And she had devoted her academic career to studying how the job market works.
Yellen’s first major speech as leader of the Fed did not disappoint. After touring job training programs in Chicago, she told the personal stories of workers who struggled to find employment and earn a good wage — an unorthodox move for an institution that typically deals in abstract statistics. Another speech on the economic consequences of inequality also fell outside the Fed’s traditional comfort zone.
“The new Federal Reserve Chair Janet Yellen is different. She’s a progressive who cares about jobs,” touts a slide from a Fed Up video that superimposes Yellen’s face on Rosie the Riveter.
Yellen still enjoys broad personal support among Democrats, though activists say they intend to hold her — and the rest the central bank — accountable for sustaining the recovery. Even the most vocal critics are careful to level their attacks at the institution and not directly at Yellen. In a statement, Merkley said Yellen is doing “an excellent job steering the Federal Reserve through uncertain times.” Democrats also acknowledge that Yellen must build consensus among the sometimes fractious group of 16 central bank officials who also are eligible to vote on the direction of interest rates.
“I am very pleased with Chair Yellen's tenure,” Conyers said in a statement. But, he added, “I hope the Federal Reserve leadership will agree that the wishes of Wall Street bankers should not come before the needs of tens of millions of American workers and jobseekers.”
The pressure comes as Yellen faces another crossroads. The Fed is contemplating raising rates once again, amid resilience in the job market and fading fears of recession. Some analysts believe the central bank could hike again as soon as next month — and progressives are urging the Fed to rethink.
At a packed meeting inside a stuffy conference room here Thursday, 10 top Fed officials sat down with activists to talk about the economy. The central bank has already demonstrated extreme caution in raising rates, they argued, on track for the slowest pace of increases on record. Moving gradually now could also prevent the need to hike abruptly in the future, potentially damaging the recovery in the process.
“Everybody on this panel is painfully aware of what the costs of the last recession were and wants to avoid a future recession," said Eric Rosengren, president of the Boston Fed.
The crowd appeared unconvinced.
“The economy has recovered for much of white America. But for black and Latino workers, it hasn’t,” Fed Up member Rod Adams, a neighborhood organizer from Minneapolis, said. “If you decide that we are at maximum employment now and you intentionally slow down the economy, you will be leaving us behind, pulling up the ladder after you’ve climbed it.”