No one at the Federal Reserve has delivered anything like William Jennings Bryan's "Cross Of Gold" speech. (At least not yet.) But last week, when Fed Chair Janet Yellen announced interest rates would stay at zero a bit longer, something relatively unusual for that staid institution was going on: There were protesters outside.
In fact, back in 2014, the nascent "Fed Up" campaign made history when its demonstrators dropped in on the annual Jackson Hole conference on monetary policy in Wyoming. Their demand was pretty straightforward: a national monetary policy that gives higher priority to the needs and struggles of the unemployed, of low-wage workers, and of disadvantaged minority communities.
After that, the campaign — which includes workers, economists, and activists across a whole amalgamation of groups — took off. It has released various reports and recommendations. Its members have landed face-to-face meetings with various top officials at the Fed, including with Yellen herself last November. They then returned to this year's Jackson Hole conference in August.
And it seems to be working. When Yellen was asked about the protesters at last week's press conference (the 19:30 mark) she was supportive of their engagement. She went on to say that, in her judgment, the low unemployment rate doesn't capture the full amount of slack in the labor market, which is essentially the argument Fed Up has been making. "She talked about it because that's what was in her head," Ady Barkan, the campaign director for Fed Up, told The Week. "I think it's evidence that she's listening to our concerns and our analysis."
To briefly sketch the economics: The Fed's job, as set by Congress, is to maximize employment and minimize inflation. To do the first, it cuts interest rates, but to do the second it must hike them. So there's an eternal balancing act.
The balance point is full employment: When the economy is putting to work most everyone who can be employed, demand for labor has pulled even with its supply. The "slack" in the labor market is gone. Wages, being the cost of labor, rise under those conditions. Historical evidence suggests full employment is extremely effective at boosting the wages of the poorest workers, and thus closing the inequality gap. But allow the economy to "run hot" like this long enough, and inflation goes up.
In the aftermath of the Great Recession, keeping interest rates at zero was a no-brainer. "But now we're in the part of the business cycle where the question is, when do we actually switch from worrying about too much slack in the labor market to a too tight labor market that's going to generate inflation," Josh Bivens — the director of research and policy at the Economic Policy Institute, one of the think tanks in Fed Up's coalition — told The Week. "And on that one, monetary policy is totally key."
"Right now though, I just don't think we're anywhere near overheating."
Fed Up points to other indicators like high levels of involuntary part-time employment and exceptionally low labor force participation rates — both of which Yellen mentioned on Thursday — as evidence there's more slack in the labor market than the unemployment rate suggests. Beyond that, inflation has consistently failed to even reach the Fed's target of 2 percent, much less surpass it, and wage growth since 2008 has flatlined at an anemic 2 percent.
"We want them to look at wage growth as the key variable for determining whether or not we're actually in a tight labor market," Barkan said.
Not everyone is on board, however. The Fed Up campaign has sparked criticisms from some quarters as a violation of the shield of political independence that's supposed to surround the Fed.
But there is independence in theory and then there is independence in practice. For years, prominent conservatives such as Rand Paul and Paul Ryan have harangued Fed officials for failing to raise interest rates sooner and higher, and thus squash any hint of possible inflation. Until the Fed Up campaign, there was arguably no equivalent pushback from the left.
More deeply, the very design of the Fed arguably biases it against the interests of everyday workers in subtle ways. The other five voting Fed officials, not appointed by the president and the Senate, are chosen from among the heads of the various regional Fed banks. Those heads, in turn, are picked by nine directors at each regional bank. As Barkan pointed out, this process is thoroughly opaque, and the regional directors — ostensibly meant to represent their communities — are pulled almost entirely from regional banking and corporate elites. In short, the social milieu that surrounds much of the Fed's internal culture is populated by people with very direct interests in controlling inflation, but little experience with the struggles of the underpaid and unemployed.
Which probably goes a long way towards explaining why many at the Fed put such a disproportionate emphasis on getting ahead of any possible rise in inflation, despite the data and the costs to workers.
"If you wait too long to raise interest rates and you overshoot a bit, it's really hard to see the costs of a period of 3 percent inflation instead of 2 percent inflation," Bivens continued. "The risk of tightening too soon is up to a million people without jobs, and a lot less wage growth for tens of millions of people."
Changing the Fed's thinking, in turn, is why the campaign thinks holding off even this modest initial hike is so important. "We actually think the real problem that shows in the data for the past 30 years, in terms of wages and inflation, is it's really hard to make wages grow fast for most Americans," Bivens explained. "So we really need to test the limits of how low unemployment can go."
Fed Up's specific policy asks go beyond shifting the Fed's analytical and policy priorities, and also get into reforming the appointment process for Fed officials so it is more transparent and open to input from the public. "For far too long, the voices of working families have not been included in this conversation," Barkan said. At least some Fed officials seem sympathetic on this score as well, and reforms are underway.
Ultimately, monetary policy can't be abstracted into purely technical decisions. How far to push Bivens' experimental quest for full employment is an inescapably moral question: What do we think a healthy and just society looks like? And how far are we willing to go to provide uplift and a livelihood to our country's most vulnerable and burdened members?
One way to really get at that question is to ask Fed officials to sit for a while with actual human beings who live with millions of invisible struggles, out of which all that aggregate national economic data is made. "These are the most important, powerful economic policymakers in the country," Barkan concluded. "Before they intentionally slow down the economy they need to hear from the people who will be most impacted by that."
"I think Janet Yellen was very moved when she heard some of the stories in our November meeting. You could see it in her eyes. She was almost tearing up at one point."