This afternoon, the Federal Reserve announced that it will keep interest rates near zero for the time being, maintaining its critical support for the sluggish economic recovery. The decision came as a surprise to many observers on Wall Street, including analysts at Citigroup, Bank of America, and JPMorgan Chase, who expected a rate hike to be announced today. But citing instability in the financial market and the global economy, the Fed said today it would not raise rates in the short term. Some six years after the recession officially ended, today’s decision is a sign that the economy is still far from recovered.
The decision comes less than a month after Fed Up, a nationwide coalition of economists, union members, and grassroots activists, descended on the central bank’s annual symposium in Jackson Hole, Wyoming, to demand that the Fed not abandon its role in the recovery. As I reported last month for TheAmerican Prospect, Fed Up organizers cited large racial gaps in unemployment and poverty as well as paltry wage growth as indicators that the recovery has yet to reach millions of communities, particularly those of color. During the symposium, the coalition held teach-ins on economic policy and delivered a petition to Fed leaders demanding they hold off on a rate hike until more Americans had a chance to feel the recovery.
“This is a victory for the working families who stepped up with innovative organizing to send the Fed a clear message: Our voices belong in the debate about our economy,” said Fed Up Director Ady Barkan in a statement today. “With the recovery still far too weak in too many communities, it would have been economically devastating—and immoral—to slow the economy.”
Although indicators like unemployment are near pre-recession levels, as economist Josh Bivens argues, there’s plenty this number keeps hidden, particularly the number of people who have given up looking for work. Today, the employment-to-population ratio for prime-age adults is less than half of where it was in 2008 as millions of workers remain unable to find employment. Bivens and his colleagues at the Economic Policy Institute refer to these people as “missing workers.” Wage growth, Bivens adds, has been similarly pessimistic, barely keeping pace with inflation.
And even these modest gains have been dramatically uneven. According to Census data released this week, the poverty rate among black Americans is more than two-and-a-half times the rate for whites, and has actually gone up over the past year. Similarly, black unemployment and underemployment has remained at more than twice the rate for whites.
It’s groups like these that would feel an interest rate hike most dramatically, Bivens said in a statement today. “Tightening before the economy has reached genuine full-employment is not just a mistake,” he said, “it’s a regressive mistake that would hurt the most vulnerable workers—low-wage earners and workers from communities of color—the most.”
“Today’s decision by the Federal Reserve to keep short-term rates unchanged is welcome,” Bivens added.
But the Fed’s reasoning for keeping interest rates low doesn’t seem to have much to do with issues like racial inequality or unemployment—in a statement released today, the Fed cited “solid job gains and declining unemployment” since the central bank’s last meeting in July. Rather, the Fed seems more worried about “recent global economic and financial developments” that could hamper growth.
In a press conference today, Fed Chair Janet Yellen reiterated that “the recovery from the Great Recession has advanced sufficiently far, and domestic spending is sufficiently robust” to warrant a rate hike now, but “in light of the heightened uncertainty abroad ... the committee judged it appropriate to wait.”
Moreover, the Fed still expects to raise interest rates by the end of this year, whether or not the job market sees much improvement. Over the past few months, Fed governors have hinted strongly that a rate hike would come by the end of the year, and many analysts expect an interest-rate hike at upcoming Fed meetings in October or December. If the Fed is serious about supporting a broadly shared recovery, it should hold off on this rate hike until more Americans have a chance to feel the recovery.
Center for Popular Democracy A Fed Up rally in San Francisco on March 5, 2015. T his week, Dawn O’Neal has traveled from her home in south DeKalb County, Georgia, to the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, with a simple message for Fed leaders: Don’t raise interest rates. The 48-year-old teacher’s assistant and mother of four wants Fed governors to know that her community is far from recovered and that raising interest rates too soon could be disastrous. O’Neal is one of dozens of activists and policy experts traveling to Jackson Hole this week to urge the Fed against raising rates. The campaign, called Fed Up, includes some two-dozen unions, community groups, and think tanks, from the AFL-CIO to the Working Families Party. In Jackson Hole, organizers will deliver a petition demanding that the Fed rethink its plan to raise interest rates until the recovery can reach more Americans. Fed Up also plans to hold a series of teach-ins exploring questions like “How...
If the Fed’s upcoming decision on whether to hike interest rates seems a little beyond your reach, you’re not alone. But economist Robert Reich wants to change that—and so does a growing group of activists, union leaders, and policy experts. Together with the Center for Popular Democracy, the AFL-CIO, and two dozen other unions and community groups, they’ve launched Fed Up, a nationwide coalition aimed at connecting monetary policy with the interests of ordinary Americans.
Fed Up’s goal is a more “pro-worker” Federal Reserve, and their first step is stopping the Fed from hiking interest rates before wages and employment have a chance to catch up with the recovery. Building on a similar action last year, the coalition began circulating a petition this week demanding the Fed keep rates low until wages and employment rise. With a combined membership strength in the millions, the coalition’s 25 groups are mobilizing ahead of the Fed’s annual symposium at Jackson Hole on August 27-29, where they plan to deliver the petition and plead their case.
By design, most of us don’t have much say over how the Fed operates. The Federal Reserve’s decisions do not have to be ratified by Congress or the president and it doesn’t rely on Congress for funding. Its leadership is also skewed pretty heavily toward the 1 percent: Of the 108 current directors of the 12 regional Federal Reserve banks, 91 come from banks and financial institutions. Just two of them officially represent workers (by law, 72 are required to represent the public).
The Fed is also incredibly powerful. Its decisions can have a dramatic impact on unemployment, wages, inequality, even who becomes president. The Fed can make it easier or harder for you to find work, pay down debt, or get a raise. Fed policy can fuel a speculative bubble, promote wage growth and full employment, or plunge the economy into deep recession—all without Congress or the president having to lift a finger.
Which is exactly why the folks behind Fed Up want working people to have a greater say over Fed operations, particularly as it considers raising rates as soon as next month. As Robert Reich explains below, that would be a big mistake:
As Reich argues, while the unemployment rate of 5.3 percent is the lowest it’s been since 2008, there’s plenty that number doesn’t show. Wage growth, for one thing, recently hit its slowest rate since 1982. In fact, wage growth has been below the Fed’s 2 percent target almost consistently since the recession ended. At the same time, while the official jobless rate has been improving, the employment-to-population ratio is nowhere near what it was when the recession began—meaning there’s a large number of Americans who have given up looking for work. According to the Economic Policy Institute (also a member of the Fed Up coalition), returning to the economy of December 2007 would mean adding three million more jobs. In other words, there are millions of Americans the recovery has not yet reached, and whom it may never reach if the Fed hits the brakes too quickly.
The mechanics of monetary policy are not typical fodder for a grassroots progressive campaign. But with the stakes this high, that probably needs to change. Depending on how the Fed acts now, the tepid recovery of the past six years could become a new normal of low growth, stagnant wages, and high unemployment—or the Fed could commit now to supporting a real recovery.
The Greek Parliament is set to vote today on reforms required for opening negotiations on a badly needed 86 billion euro bailout. Those reforms mostly include tax increases and budget cuts—conditions now painfully familiar to millions of Greeks who have already suffered through more than five years of crushing austerity.
But one part of the Greek budget that’s unlikely to be seriously cut back is defense. Which is a shame, because unlike pensions or fuel subsidies, it’s one area the government could easily afford to trim. Since the mid-1970s, in fact, and right through the last five years of fiscal crisis, Greek military spending as a percentage of GDP has been the highest among EU or NATO countries (aside from the U.S.).
That’s right: The nation at the heart of the Eurozone’s existential crisis, an economy that’s contracted by a full 25 percent since 2009 and has suffered Great Depression-level unemployment for the past five years, also has the continent’s biggest military budget. And it’s not just the budget itself. Despite participating in little more than peacekeeping operations in recent decades, Greece has the highest ratio of military personnel to population in Europe. And to this day, Greece’s 1,300-strong inventory of tanks is twice the number of the United Kingdom.
Why the massive military? Since the end of Greece’s military junta in the mid-’70s successive governments in Athens have justified the large defense budget as a safeguard against neighboring Turkey, with which Greece has fought numerous wars throughout its history. But more recently that argument has come to make less and less sense. After all, since 1952, both countries have been members of NATO, and thus bound by treaty to come to the other’s defense. And in the late 1990s when Turkey unsuccessfully attempted to join the EU, Greece’s then-Foreign Minister George Papandreou offered critical support.
But even stranger is the fact Germany has been one of Greece’s leading suppliers of arms right through the last five years. As Helena Smith reports for The Guardian, German-made weapons account for more than a quarter of Greek arms imports. Despite Germany’s critical role in demanding round after round of harsh austerity, Greece has long been its largest market for weaponry.
To be fair, Greece’s defense budget hasn’t totally escaped cuts during the crisis. Since 2009, Greece has reduced its military spending by a full 54 percent, and while that’s significant, defense still accounts for 2.4 percent of Greece’s GDP—higher than Britain, Germany, or France, all nations that, unlike Greece, have seen major combat within the last two decades. In other words, the cuts since 2009 have moved the share of Greece’s defense spending from more than 3 percent of its economy to around 2.4 percent (higher than all Eurozone nations, but just below the Pentagon).
What’s more, it seems unlikely that defense cuts will be allowed to go much further. A few weeks ago, as Greece faced enormous pressure to once again cut its pension program, the European Commission came up with a compromise. If Greece slashed its military budget by 400 million euros, it could defer the pension cut. But the International Monetary Fund reportedly balked at the proposal, and the deal didn’t go through. Greeks braced themselves for another round of deep pension cuts and Greece’s military budget—enormous for the size of the country—remained unscathed. In fact, NATO recently estimated that instead of shrinking, Greece’s defense budget may actually increase over the next year.
For the past five years, ordinary Greeks have overwhelmingly paid the price for their government’s financial misdeeds. It’s time Greece’s defense budget shares some of that pain.
AP Photo/Henny Ray Abrams Linda Sarsour, director of the Arab American Association of New York, poses for photos in front of a canvas painted by the association's youth group at its headquarters in the Brooklyn borough of New York City. F or the nationwide movement against police violence, the news of charges being brought against the six Baltimore officers involved in the death of Freddie Gray has been a welcome development. Linda Sarsour, executive director of the Arab American Association of New York and an organizer in the Black Lives Matter movement, is cautiously optimistic. “It’s a little bit of a morale booster,” she told me in an interview, “I think that this kind of gave activists in the streets that rejuvenation and that energy they need to continue doing what they’re doing.” Sarsour was in Asheville, North Carolina earlier this month for the America Healing Conference, a four-day dialogue on racial justice and community healing sponsored by the Kellogg Foundation. There...