Why Equity Advocates Should Care About the Fed

11 Sep 2014 | America's Tomorrow
Why Equity Advocates Should Care About the Fed
Above: Photo Credit: Liberty Times

Kendra Brooks from Philadelphia joined a determined band of grassroots advocates who traveled to a secluded mountain resort in Wyoming in late August to deliver two messages to the nation's chief banking officials.

First, include the voices of workers and low-income communities in policy discussions. And second, keep interest rates low to stimulate job creation and higher wages for the people hit first and worst by the recession and still struggling to recover — disproportionately communities of color.

It was the first protest ever at the annual Jackson Hole Economic Policy Summit, an invitation-only event where officials of the Federal Reserve System, the nation's central bank, join academic economists to contemplate the future of the economy. Brooks and nine other activists came as emissaries of a dynamic new national coalition of community organizations, unions, and consumer groups pushing the Federal Reserve to prioritize full employment and rising wages.

"I had the American dream but it crumbled," Brooks said. "That's what brought me to Jackson Hole. We need to do something to make sure there are more jobs."

Brooks, who has an MBA, spent 18 months searching for work after she was laid off from a longtime job directing programs for a large nonprofit organization. She went through her savings and 401K, had her car repossessed twice, and almost lost her home before she landed a position as a field manager for Action United, an organization of low-and moderate-income Pennsylvanians working to build power through organizing. She loves the job, but it pays less than half of what she used to earn.

"People think, wow, if you don't speak economics, you can't talk to the Fed or even understand what they do. I don't speak economics but I can break it down, connect the dots, and see how the Fed's actions would put me further in the hole or help me climb out. And not just me — I know so many people in the same situation."

We asked three people to break it down and connect the dots for America's Tomorrow: Brooks, Valerie Wilson, the director of the Program on Race, Ethnicity, and the Economy at the Economic Policy Institute, and Ady Barkan, attorney with the Center for Popular Democracy, which is coordinating the campaign to reform the Fed. Here's what we learned.

Why should advocates for an equitable economy care about the Fed's policies?

Tasked with maintaining the health of the U.S. economy, the Federal Reserve is the most powerful force in determining the pace of growth. Although its work may seem arcane, Fed policies affect workers and families in countless ways, from how much we pay for mortgages or student loans to our prospects for finding and keeping a good job.

The Fed's six-year policy of rock-bottom interest rates has fueled hiring and job creation since the financial collapse. But the recovery has eluded the communities in greatest need. While overall unemployment was 6.1 percent in August, the rates for African Americans and Latinos were 11.4 percent and 7.5 percent, respectively, compared with 5.3 percent for whites. Nearly 20 percent of teens ages 16-19 are unemployed.

When the economy is growing quickly, workers have increased job opportunities and more bargaining power to demand better jobs. When the United States had robust economic growth in the late 1990s, for instance, unemployment in the African American community fell to a historic low and median incomes rose. As the most influential institution in determining how quickly or slowly the economy grows, the Federal Reserve should be on the radar of everyone who cares about equitable job creation and livable wages.

How does the Fed accelerate or slow down growth?

The number one monetary tool the Fed has is setting interest rates. When the Fed keeps interest rates low, businesses take out more loans to invest, expand, and hire more workers. And consumers borrow more to spend on goods and services, which stimulates business activity and creates more jobs. Basically, by keeping interest rates low, the Fed is stepping on the gas pedal of the economy. High interest rates slow down activity all along this chain, like pressing on the brakes.

Why is this an urgent concern for communities now?

Within the Federal Reserve System there is talk about raising interest rates in the near term, now that overall unemployment has declined. Some economists warn that if unemployment drops below a certain point, it will cause inflation by driving up wages and prices. But there is little evidence that the United States is entering an inflationary period. Meanwhile, although the overall unemployment rate suggests that America has recovered from the Great Recession, things look different for communities of color and others. Black unemployment is more than double the rate for whites. Unemployment among high school graduates is almost double the rate among college graduates.  "If the Fed decides now to pursue a more restrictive kind of policy that slows economic growth for the sake of containing inflation, that really puts the brakes on the ability of these communities to then benefit from any ongoing job creation," Wilson said.

How can worker and community representatives penetrate what has been a fortress of monetary policymaking?

The Center for Popular Democracy and dozens of partners are amplifying worker voices and concerns to the Fed. The recent protest at Jackson Hole was covered in national media, including Forbes, Wall Street Journal, and the New York Times, and several protestors met with Vice Chairman Stanley Fischer and Esther George, president of the Federal Reserve Bank of Kansas City and a proponent of raising interest rates in the short term.  The campaign is seeking conversations with the national board as well as the district banks that are more focused on local communities.

What's next for the campaign?

In the coming months, the campaign will be setting up conversations with Fed district presidents to invite them to visit communities in dire need of economic renewal. The campaign also will continue pushing for workers and communities to be included in decisions that affect their economic prospects. "It's important that decision makers in positions of power in the Fed have an understanding of what life is like in our communities," Barkan said.

Learn more about the campaign to reform the fed, read the open letter signed by PolicyLink and 70 other organizations, and sign the petition.

Read the rest of the September 11, 2014 America’s Tomorrow: Equity is the Superior Growth Model issue.

economy