Fed takes fire from the left

Fed takes fire from the left
© Greg Nash

The Federal Reserve is facing growing criticism from the left as the central bank prepares for its first interest rate hike since before the 2008 financial crisis.

The Fed has faced years of criticism from conservatives for its expansive monetary policy after the meltdown, with Republicans frequently calling on the bank to raise interest rates. But now with it on the cusp of doing just that, it is Democrats’ turn to second-guess the Fed.

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Liberals on and off Capitol Hill are beginning to publicly push the Fed to hit the brakes on its policy. They argue that more can be done to boost the economic recovery and point to slow growth in wages as a sign there are still economic ills that require the Fed’s accommodation. And they argue that with inflation still well below the Fed’s 2  percent target, there shouldn’t be any rush to raise rates.

With a national unemployment rate of 5 percent as of October, they want to see if the low rates can spur further gains before the Fed heads in the other direction.

“This, to me, is just a potential huge wasted opportunity, because we have a lot of uncertainty about how low unemployment can be before sparking inflation,” said Josh Bivens, research and policy director for the left-leaning Economic Policy Institute. “There’s no particular reason to think that we can’t go as low as four percent. That’s a million and a half workers.”

For years, Fed criticism has been the near exclusive purview of the right. From presidential candidates on down, conservatives have been quick to criticize the Fed’s efforts to steer the economy through the recession.

In particular, the Fed became a popular target after it decided to buy up trillions of dollars in bonds in an unprecedented policy move called “quantitative easing,” aimed at further lowering borrowing rates. Republicans called the move risky and ineffective and have consistently pressured the Fed to tighten its policy before inflation is out of control.

But with a rate hike looming, the left is mounting a campaign to push the Fed to hold off. Liberal protestors have met Fed officials from Washington to Jackson Hole, Wyo., where the Fed holds a regular conference, to tell Fed Chairwoman Janet Yellen that middle- and working-class Americans could still use an economic boost.

And Democratic lawmakers are getting in on the action. During testimony before the House Financial Services Committee earlier this month, Yellen fielded multiple questions from Democrats wary of an imminent rate hike.

Rep. Carolyn Maloney (D-N.Y.) warned it could “end up hurting the fragile economic recovery.” And Rep. Brad Sherman (D-Calif.) aired concerns about what a rate hike could do to the housing market.

Rep. John Conyers Jr. (D-Mich.) is taking matters one step further by pushing legislation that would force the Fed’s hand.

Since 1977, the Fed’s mandate from Congress has been to pursue policies that maximize employment and control inflation.

Conyers wants to get even more specific, and his bill would stipulate that the Fed should not consider employment maximized until it falls to four percent. Furthermore, the bill would add language requiring the Fed to identify steady wage growth and enhanced productivity before declaring the job done on employment.

Conyers, who will be touting his legislation Tuesday at a Capitol Hill event, argues it is wrong for the Fed to hike rates before more Americans have felt the effects of the recovery and has dismissed “Wall Street jitters” urging the Fed to act sooner.

“It is unacceptable for any branch of our government to take any action to slow our economy before all Americans have the opportunity to experience the jobs recovery and see meaningful wage growth,” he said in September.

But just because Democrats are getting in on the action does not mean Republicans are turning down their pressure. Earlier this month, House Republicans passed legislation that would overhaul the Fed’s operations and require it to adhere to a strict set of rules when setting monetary policy. The bill passed despite vocal protests from Yellen, who said the bill would handcuff the Fed and expose it to political pressure.

Yellen has repeatedly emphasized that when the Fed does decide to raise rates, it is going to do so slowly and deliberately, constantly checking new economic data to ensure its policies are not derailing the economy.

So even if the Fed does raise rates at its December meeting, as is widely expected, the central bank will likely continue to hear voices from the left pushing it to go slower as Republicans pull in the opposite direction.

“The Fed has just been getting tons of pressure from the side of the debate that is opposite of where I am,” said Bivens. “They need some counter-pressure from the other side.”