Progressive activists opposed to a Federal Reserve interest rate hike gained an influential new ally on Labor Day: The New York Times editorial board.
In a Monday editorial, entitled “You Deserve a Raise Today. Interest Rates Don’t,” the Times argued that if the Federal Reserve raises interest rates in the near term, it could slow job creation at a time when there are still too few jobs to generate substantial wage growth.
“Wage stagnation is a clear sign that the economy is not at full employment, which means it needs loose monetary policy, not tightening,” the Times wrote.
The Times called the Fed a “crucial player” in efforts to undo the decades-long trend of worker wages not growing in sync with the broader economy. The paper noted that from 1973 to 2014, median worker pay rose 7.8 percent while overall productivity increased by 72 percent, a finding published Wednesday in a report from the liberal-leaning Economic Policy Institute.
An interest rate hike would exacerbate, rather than reverse, this trend by slowing wage growth, the Times editorial suggested. The paper also said that an interest rate hike would send “the wrong signal of economic health,” undermining efforts by advocacy groups to raise workers’ wages through measures like increasing the minimum wage.
It is unclear what impact the Times’ editorial will have on the Fed’s decision-making, but it is a high-profile boost for progressive activists and economists, who have long argued that a Fed interest rate hike should be tied to wage growth that is about twice as high as it is currently.
These activists, led by the Center for Popular Democracy's Fed Up campaign, note that even as the official unemployment rate declined to 5.1 percent in August -- its lowest level since April 2008 -- wages have grown 2.2 percent in the past 12 months, only marginally outpacing increases in living costs. Since wages rise when demand for workers is high enough that businesses must compete for labor, many economists attribute ongoing sluggish wage growth to the number of people who are underemployed or have given up looking for work -- figures masked by the low official jobless rate.
The Fed Up campaign sent a memo to newspaper editorial boards across the country on Sept. 1, asking them to oppose an interest rate hike in 2015. The memo, a copy of which was obtained by The Huffington Post, employs arguments that resemble those used by The New York Times. The memo warned that an interest rate hike in 2015 would "leave millions in considerable and unnecessary economic distress and would exacerbate troubling longer-term trends in wages and incomes for the vast majority of American workers and their families."
Fed Up campaign director Ady Barkan celebrated the editorial, but stopped short of claiming credit for it.
"The New York Times Editorial Board is right," Barkan said in a statement. "Workers do deserve a raise! The data is crystal clear – stagnant wages and the lack of inflation mean that the Fed shouldn’t raise rates anytime soon. The Fed Up campaign is of course glad that the Times and other leading voices are speaking up about this issue."
Fed officials have signaled for months that they plan to raise the current near-zero interest rates before the year’s end, but William Dudley, president of the Federal Reserve Bank of New York, recently indicated that a September increase may be too soon in light of market fluctuations. The Federal Open Market Committee, the central bank body charged with adjusting key interest rates, will report on whether it plans to raise rates on September 17.
Supporters of an interest rate hike argue that it is necessary to head off excessive price inflation, which, along with maintaining full employment, is part of the Fed’s dual mandate.
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