Now, I’ve been patrolling this corner of economics for a long time and I don’t recall anything like this in the past. And given the economic challenges facing working families and the centrality of the Fed in meeting those challenges, it’s a development I wholly endorse (I’ve advised the campaign on occasion).
Well, this week members of Fed Up, along with some simpatico economists, are following the Fed out to their annual Jackson Hole conference to press their case. I caught up with Dawn O’Neal and economist Josh Bivens of the Economic Policy Institute for a Q & A. Their edited remarks follow:
Jared Bernstein: Tell me a little bit about yourself.
Dawn O’Neal: Well, my name is Dawn O’Neal. I work as a teacher’s assistant at a day-care center in Atlanta, and I make $8.50 an hour. I do hard work, with 15 3-year-olds in a classroom, and I work 40 hours a week.
Bernstein: Why are you going out to Jackson Hole?
O’Neal: I’m going out to Jackson Hole because the Fed is talking about raising interest rates. And they said that the economy is stable enough to be able to handle it. Well, when I look around at the community that I live in, I don’t see the stability in the economy that they’re talking about. Like I said, I make $8.50. My husband is unemployed. In my community [DeKalb County, Ga.], I don’t see that economic stability. I still see people struggling.
Bernstein: When you say people are struggling, what do you mean?
O’Neal: There’s the jobless. There’s high crime in this community. It’s not a very economically stable community. And so I’m wondering if the people out at Jackson Hole have even taken into account the community that I live in and communities like this across the nation. Maybe they should have a conference here in South DeKalb County.
Bernstein: So, what is it that you want the members of the Federal Reserve to hear from you and your colleagues out there?
O’Neal: I want them to know what life is like for us right now, and how it will hurt job prospects in the community if they raise the interest rates in September.
Bernstein: Tell me why lower interest rates are important to you.
O’Neal: Once the interest rates are raised, everything is going to go up. That would affect all of us. For instance, the people that hold the mortgage for my apartment complex — if their mortgage rate goes up, where are they going to get the money to pay for that? They’re going to raise my rent. We’re already struggling now just to make rent of $660. Remember, I only make $8.50 an hour.
Bernstein: As an African American, you know the black unemployment rate stays higher than the white rate even in good times. Is that something you’d like to see the Fed consider?
O’Neal: I absolutely do. They say they have programs that they have put into African American communities, but we haven’t felt the result, or we haven’t seen any of it. And I think the Federal Reserve can do more. We’re hardworking – this community that I live in are hardworking people, and we want to work. Those who are unemployed want to work, but they can’t find work. People don’t want to live off of government handouts. They want to have a livable wage. They want to be able to go to work, work 40 hours and be paid what they’re worth. I don’t think the Federal Reserve is considering that in this community and communities like mine around the country.
Bernstein: Do you think the people in this country who are responsible for economic policy, like those in Jackson Hole or here in Washington, know enough about this economy that you’re describing – the one that you, your husband and your community face?
O’Neal: I think that they know all of the numbers and statistics, Jared, but I don’t think they know the real life and the real struggle of people that are in these low-income communities.
Josh Bivens, economist
Bernstein: When I think about Josh Bivens, I picture you sitting in an office with the shades closed, crunching numbers on a computer. What are you doing out in Wyoming?
Josh Bivens: Good question! The hope is always that the research we do will have some real world impact on policymakers, so this is an attempt to make sure the research gets used.
Bernstein: I get what the “Fight for $15” is asking for, but what’s your “ask?”
Bivens: There are a couple of asks. The overarching ask is for the Federal Reserve to begin giving a higher weight to the economic prospects of low- and moderate-wage workers when it makes monetary policy. More concretely, in the short term the ask is for them not to raise rates until there actually is some sign that wage growth has picked up and threatens the Fed’s inflation target. Preemptive rate hikes to beat back inflation that is not on the radar would be pretty damaging for low-wage workers.
In the longer run, I think that the ask is to make sure that the boards of regional Federal Reserve banks are more reflective of a diverse array of viewpoints. They get a lot of input from the financial sector; they get a lot of input from the corporate sector; and we think they need more input from community groups, from labor groups, from people like that.
Bernstein: Given the absence of price or wage pressures, why is the Fed so set on raising rates?
Bivens: This is still a pretty contested debate, and even before the recent stock market freakout, I don’t think it was a complete slam dunk to say that rates were going to be raised in, say, September. There is definitely a very loud and influential contingent that has been saying publicly for a very long time that it is past due for an interest rate liftoff. Where those people are coming from, it looks like, is that unemployment is a lot lower than it was three years ago; unemployment is approaching our ex ante estimates of the “natural rate” [the lowest unemployment rate consistent with stable inflation], and so it must be time to raise rates.
I think the rebuttal to that is that if you’re getting really close to what you think is the natural rate and wage growth is not budging, then you have probably incorrectly estimated the natural rate. We’ve seen both the Fed and the CBO in the last six months sensibly nudge down their natural rate estimates. As we got close to what they said it was and wage growth didn’t pick up, they took the sensible view and said: “Well, guess it’s lower than we think.”
We’re really just hoping that the Fed aims to remain data-driven, and I think a lot of the people at the Fed are very data-driven. I think this loud, influential contingent that seems to ignore the data just wants to get back to a “normal economy.” I want to get back to a normal economy, too, but we’re not there, so we can’t act like the way we get it back to “normal” is to just “normalize” interest rates. You have to wait until the actual economy is normalized, as well.
Bernstein: Do you really think it would make that much of a difference if they just bumped the Fed funds rate up 25 basis points and left it there for a while?
Bivens: No, my best guess for that is probably not. That probably wouldn’t do all that much to slow the economy, but I don’t think the economy needs to be slowed! You could flip that question on its head and say: If raising by 25 basis points and holding there has little impact on the economy, why do it at all? There seems to be some sort of pressure that I don’t understand about “the need to get off of zero.” I do economics, not psychology, and to me the economics say that while 25 basis points is not a big move in the wrong direction, it’s still the wrong direction!
Bernstein: Should the Fed respond to outside pressure groups? I may like where you’re coming from, but I could easily imagine outside pressure from a group that I wouldn’t like so much.
Bivens: There is probably some idealized world where policy makers are able to do pure technocratic analysis and come up with the best policy, but we don’t live in that world. The Fed is constantly getting intense, unrelenting pressure from outside groups, including influential members of Congress and influential regional presidents from Federal Reserve banks, who are making a very loud, if not very strong, case for an interest rate lift. So in the real world, counter-pressure from people like us is important.
I’m actually pretty comfortable with what the Fed Up campaign is doing because what we’re really asking for is just: Look at the data. Don’t start raising the rates based on expectations or based on what theory says. Base your decisions on the actual real world around you.
The Fed reaction function also has to weight the desirability of low unemployment along with the desirability of low inflation. I think having real workers come and talk about the really destructive effects that high unemployment has on their communities can keep a higher weight on keeping unemployment low.