Janet Yellen, chair of the Federal Reserve, raised more than a few eyebrows in July when she suggested the Fed can do little to reduce the unemployment rate among African-Americans, which at the time was nearly twice as high as the rate for the overall population.
Testifying before the House Financial Services Committee on July 15, Yellen told Rep. Joyce Beatty (D-Ohio) that black people are unemployed at higher rates than the overall population during boom times and recessions alike, which she believes indicates the disparity is a reflection of structural factors beyond the scope of Fed's monetary policy.
While Yellen’s point had merit, it rankled liberal economists and activists who noted that precisely because African-American unemployment is perennially higher, black people benefit disproportionately from even modest improvements in the job market. As a result, Fed policies that promote job growth -- namely low interest rates -- can significantly improve the living standards of people of color.
Had the Berkeley economist, whose chairmanship liberals fought for against the wishes of President Barack Obama, simply articulated her argument poorly? Or had Yellen, as Fed chair, grown out of touch with how Fed interest rates affect ordinary people?
On Thursday, Yellen settled doubts that the latter was true. She confirmed her staunch commitment to the Fed’s full employment mandate and appreciation of how minor job market changes disproportionately affect marginalized communities.
At a press conference following the Fed’s announcement that it would leave the benchmark interest unchanged, Yellen was asked about claims that prolonged low interest rates are widening the income gap by inflating the value of financial assets. It is incidentally a favorite critique of prominent Republicans like New Jersey Gov. Chris Christie.
Yellen responded with a full-throated defense of how an “accommodative” monetary policy -- or one that keeps interest rates low -- actually reduces income inequality by maximizing job opportunities for the most vulnerable.
“To me the main thing that an accommodative monetary policy does is put people back to work,” Yellen said. “And since income inequality is surely exacerbated by having high unemployment and a weak job market -- and that has the most profound negative effects on the most vulnerable individuals -- to me, putting people back to work and seeing a strengthening of the labor market, that has a disproportionately favorable effect on vulnerable portions of our population. That is not something that increases income inequality.”
Although Yellen did not mention African-Americans explicitly in her answer, Jared Bernstein, a senior fellow at the liberal think tank Center on Budget & Policy Priorities, said her comments were a more effective expression of the views she has held all along.
“I think she put it more thoughtfully yesterday and she was considering some of the dynamics that really affect employment for African-American workers that did not come out” in her July testimony, he said.
That was not the only thing for progressives to like in what Yellen had to say.
Asked whether protests opposing an interest rate hike out of concerns for the job market -- such as that of the liberal-leaning Fed Up campaign -- had affected the Fed’s decision, Yellen said the Fed welcomed input from all groups but ultimately came to its own conclusions.
But then, unprompted, the Fed chair expressed her agreement with one of the Fed Up campaign’s core contentions: that the economy is far from full employment. Yellen said “the standard unemployment rate understates the degree of slack,” or room for growth, in the job market, since it fails to account for still-high rates of people who are involuntarily working part-time or have given up looking for work altogether.
Those are weaknesses in the job market that many economists -- from Nobel Prize winner Joseph Stiglitz to former Treasury Secretary Lawrence Summers -- believe are responsible for sluggish wage growth. Despite an official unemployment rate of 5.1 percent, wages have risen 2.2 percent before inflation in the past 12 months.
Jordan Haedtler, deputy director of the Fed Up campaign, saw evidence of the group’s influence in Yellen’s remarks.
“It is clearly a sign that she is aware of our presence that she pivoted from a question about us to remarks about how topline unemployment figures hide the reality of people who have stopped looking for a job altogether and involuntary part-time work,” he said.
“What has been extremely positive in this cycle is that the Fed is finally hearing from a diverse group of stakeholders and that is a real plus,” Bernstein said. Before the efforts of Fed Up and its allies in the past year, the Fed had “heard very little from those whose key agenda item was achievement of full employment. In many ways it is a fortunate intersection of this moment in history: the presence of a broader group of stakeholders and a Fed chair who is very sensitive to full employment policy.”
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