Should the Federal Reserve raise interest rates in order to create more unemployment and thereby keep wages from rising? If the question were asked that way, the vast majority of Americans would say, "No!" It is not posed in this manner, even though all economists -- including Fed economists -- and many journalists who write for the business press know that this is exactly what the Fed will be doing when it raises interest rates. Of course, the last link in this chain of reasoning is that we "need" to do this in order to keep inflation from rising to harmful levels. But the Consumer Price Index is actually down slightly for the year ending in January -- that is, inflation is in negative territory. Why should anyone want to increase unemployment just to keep inflation down?
When the Fed increases unemployment, it increases it twice as much for African Americans as for white workers. And higher unemployment also reduces wage growth much more for African-American workers and lower-wage workers (i.e., the bottom 20 percent). Across the board, more unemployment translates very directly into more income inequality.
This is no time to be increasing unemployment and inequality and pushing down wages. Median household income in the U.S. is still down about 3 percent since the recession ended in mid-2009. For the vast majority of the workforce, wages have stagnated or declined since 1979. Meanwhile, in the first three years of the current economic recovery, the top 1 percent of the income distribution received 91 percent of all income gains.
Fortunately, for what is probably the first time in the Fed's century of existence, there is a grassroots movement to hold America's central bank accountable to the voters, citizens, and working people of this country. A coalition led by the Center for Popular Democracy is "Fed Up" and trying to make sure that the Fed doesn't cut off wage growth before it even gets rolling. They are also trying to make the Fed comply with the law in how it chooses the presidents of its 12 regional banks. These presidents have a major say in interest rate policy.
If America is to shed the title of "Land of Inequality," this is how it is going to happen: by more people becoming aware of how the Fed's monetary policy affects them and demanding that it change.
This piece was originally published by USA Today on March 17, 2015.