The Federal Reserve’s decision not to raise interest rates in June prompted a a sigh of relief on Wall Street Wednesday, but it wasn't enough to win over economists and activists concerned about sluggish wage growth.
The Fed said in a statement that it is keeping the federal funds rate -- the main interest rate it adjusts --at between 0 and 0.25 percent, where it has been since 2009. But in economic projections that accompanied the Fed's statement, 15 of 17 Fed board members and regional presidents agreed that economic conditions would warrant a rate increase before the end of 2015.
Most analysts interpreted the announcement to mean that the Fed would increase rates in September.
But economists who have long pushed for the Fed to more aggressively encourage wage growth warned that a rate hike in 2015 would unnecessarily hit people in their wallets. These economists, along with the Center for Popular Democracy’s Fed Up campaign, are part of a growing movement pushing for monetary policy that prioritizes full employment, and the wage growth that comes with it, rather than concerns about price inflation.
“I think 2015 is too soon at the current economic pace” for a rate increase, said Josh Bivens, research and policy director of the Economic Policy Institute. “There is strange eagerness to do it sooner rather than later, but the data just refuses to cooperate.”
Bivens noted that the same Fed projections that appear to show a consensus for raising rates in 2015 forecast slightly higher unemployment and slightly lower gross domestic product growth than previous estimates. Bivens said he wants the Fed to measure full employment on the basis of concrete wage growth, because wage growth accelerates when unemployment gets low enough that employers compete for workers.
The Fed has a firm 2 percent inflation target, Bivens observed, but the criteria it uses to measure full employment are "not very firm."
Bivens and Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities and former economic adviser to Vice President Joe Biden, said they would like the Fed to tie a rate increase to annual wage growth of 3.5 percent, before inflation. Wages are currently 2.3 percent higher than they were at this time last year.
Meanwhile, jobs remain out of reach for many. There are 8.7 million people seeking work. Unemployment remains particularly high among African-Americans, with an official unemployment rate of 10.2 percent.
Economists aren't alone in urging the Fed to hold off on raising rates. The World Bank and the International Monetary Fund both recently cautioned against a Fed rate hike in 2015.
Dean Baker, co-director of the Center for Economic and Policy Research, agreed that 2015 was too soon for a rate hike. He noted that the United States’ employment-to-population ratio for prime-age workers is now lower than that of Germany, Japan, France or the United Kingdom.
The Fed Up campaign, which focuses on mobilizing urban communities of color to advocate pro-wage growth Fed policy, also reacted strongly to Wednesday’s Fed statement.
“The economy remains far too weak for the Fed to consider slowing it down,” Ady Barkan, campaign director of Fed Up, said in a statement. “The Fed should set more ambitious goals for the American economy: wage growth that equals productivity growth plus inflation and a genuine recovery for all communities, especially communities of color.”
Fed Up said it is “planning next steps” to lobby the Fed to stop a rate hike.
For more on the economists and activists trying to influence the Fed, and how the Fed works, check out this HuffPost primer.
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