Stiglitz writes: "As central bank governors, Federal Reserve officials,
economists and reporters convene for the annual economic policy retreat in
Jackson Hole, Wyo., this weekend, the question on everyone's mind is: Will
the Fed raise interest rates come September?"
Joseph Stiglitz. (photo: Reuters)
Raising Interest Rates Would Hurt Working People
By Joseph Stiglitz, Los Angeles Times
28 August 15
As central bank governors, Federal Reserve officials, economists and
reporters convene for the annual economic policy retreat in Jackson Hole,
Wyo., this weekend, the question on everyone's mind is: Will the Fed raise
interest rates come September?
The answer should clearly be "no." The preponderance of economic data
indicates that the predictable costs of premature tightening - slower job
and wage growth - far outweigh the risk of accelerating inflation.
Six years into a lackluster U.S. expansion, price growth for personal
consumption expenditures - excluding food and energy - has averaged less
than 1.5% annually in the recovery, well below the Fed's unofficial 2%
inflation target. It slowed to 1.3% so far in 2015.
Global economic forces are poised to drive inflation still lower. Last week,
oil prices fell to $42, a low not seen since February 2009. Europe's growth
remains anemic and is likely to remain so: The IMF forecast for 2015 is just
1.5%. And while it is difficult to piece together a precise picture of what
is happening in China, most experts see growth slowing markedly, with
effects in other emerging markets.
With a weaker euro and yuan, our exports will decrease and our imports
increase. Together, this will put pressure on domestic businesses and the
job market, which is hardly robust.
Despite a headline unemployment rate of 5.3%, the true labor market
situation faced by working families in the United States remains dire.
Millions remain trapped in disguised unemployment and part-time employment.
As of July, the nation faced a jobs gap of 3.3 million - the number needed
to reach pre-recession employment levels while also absorbing the people who
entered the potential labor force. The true unemployment rate, including
those working part time involuntarily and marginally attached, is more than
10.4%.
Poor labor market conditions are also reflected in wages and incomes. So far
this year, wages for production non-supervisory workers, which tracks
closely to the median wage, fell by 0.5%. Median household income - a better
indicator of how well the economy is doing as seen by the typical American
than GDP - at last measure was lower than it was a quarter-century ago.
It is hard to see why the Fed would choose slower job and wage growth for
most Americans just to protect against the theoretical risk of moderately
higher inflation. But, then again, it's often hard to understand the Fed's
policy choices, which tend to contribute to widening inequality in the
United States.
Too often, after the end of one recession, the Fed, fearing inflation, has
used monetary policy to dampen the economic expansion. Its maneuvers keep
inflation low but unemployment higher than it otherwise would be, negatively
affecting all workers, not just those out of a job. Workers in jobs face
greater stresses, downward pressure on wages and diminished opportunities
for upward career mobility. The costs of higher unemployment are borne
disproportionately by people in lower-income jobs, who also tend to be
disproportionately people of color and women.
After the 2008 crisis, the Fed tried to stimulate the economy by buying bank
debt, mortgage-backed securities and Treasury assets directly from the
market - so-called quantitative easing - which disproportionately benefited
the rich. Data on wealth ownership show clearly that the portfolios of the
rich are weighed more toward equity, and one of the main channels through
which quantitative easing helped the economy was to increase equity prices.
So quantitative easing was yet another instance of failed trickle-down
economics - by giving more to the rich, the Fed hoped that everyone would
benefit. But so far, these policies have enriched the few without returning
the economy to full employment or broadly shared income growth.
The Fed has been forthright in pointing out the limits of monetary policy to
help the economy. Fiscal policy could lead to stronger and more equitable
growth, but the Republican-led Congress has demanded austerity.
Still, there is more the Fed could do. It could do more to curb excessive
debit card fees and the anti-competitive charges that credit and debit cards
impose on merchants. These fees lead to higher prices and lower real incomes
of workers. It could also do more to encourage lending to small and
medium-sized businesses.
Easiest of all, it could choose not to raise interest rates. All policy is
made under uncertainty. In this case, however, the risks are one-sided:
Ordinary Americans in particular will be hurt by a premature rate rise, as
the economy slows, unemployment increases and there is even more downward
pressure on wages.
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Joseph Stiglitz. (photo: Reuters)
http://www.latimes.com/opinion/op-ed/la-oe-0827-stiglitz-interest-rates-2015
0827-story.htmlhttp://www.latimes.com/opinion/op-ed/la-oe-0827-stiglitz-inte
rest-rates-20150827-story.html
Raising Interest Rates Would Hurt Working People
By Joseph Stiglitz, Los Angeles Times
28 August 15
s central bank governors, Federal Reserve officials, economists and
reporters convene for the annual economic policy retreat in Jackson Hole,
Wyo., this weekend, the question on everyone's mind is: Will the Fed raise
interest rates come September?
The answer should clearly be "no." The preponderance of economic data
indicates that the predictable costs of premature tightening - slower job
and wage growth - far outweigh the risk of accelerating inflation.
Six years into a lackluster U.S. expansion, price growth for personal
consumption expenditures - excluding food and energy - has averaged less
than 1.5% annually in the recovery, well below the Fed's unofficial 2%
inflation target. It slowed to 1.3% so far in 2015.
Global economic forces are poised to drive inflation still lower. Last week,
oil prices fell to $42, a low not seen since February 2009. Europe's growth
remains anemic and is likely to remain so: The IMF forecast for 2015 is just
1.5%. And while it is difficult to piece together a precise picture of what
is happening in China, most experts see growth slowing markedly, with
effects in other emerging markets.
With a weaker euro and yuan, our exports will decrease and our imports
increase. Together, this will put pressure on domestic businesses and the
job market, which is hardly robust.
Despite a headline unemployment rate of 5.3%, the true labor market
situation faced by working families in the United States remains dire.
Millions remain trapped in disguised unemployment and part-time employment.
As of July, the nation faced a jobs gap of 3.3 million - the number needed
to reach pre-recession employment levels while also absorbing the people who
entered the potential labor force. The true unemployment rate, including
those working part time involuntarily and marginally attached, is more than
10.4%.
Poor labor market conditions are also reflected in wages and incomes. So far
this year, wages for production non-supervisory workers, which tracks
closely to the median wage, fell by 0.5%. Median household income - a better
indicator of how well the economy is doing as seen by the typical American
than GDP - at last measure was lower than it was a quarter-century ago.
It is hard to see why the Fed would choose slower job and wage growth for
most Americans just to protect against the theoretical risk of moderately
higher inflation. But, then again, it's often hard to understand the Fed's
policy choices, which tend to contribute to widening inequality in the
United States.
Too often, after the end of one recession, the Fed, fearing inflation, has
used monetary policy to dampen the economic expansion. Its maneuvers keep
inflation low but unemployment higher than it otherwise would be, negatively
affecting all workers, not just those out of a job. Workers in jobs face
greater stresses, downward pressure on wages and diminished opportunities
for upward career mobility. The costs of higher unemployment are borne
disproportionately by people in lower-income jobs, who also tend to be
disproportionately people of color and women.
After the 2008 crisis, the Fed tried to stimulate the economy by buying bank
debt, mortgage-backed securities and Treasury assets directly from the
market - so-called quantitative easing - which disproportionately benefited
the rich. Data on wealth ownership show clearly that the portfolios of the
rich are weighed more toward equity, and one of the main channels through
which quantitative easing helped the economy was to increase equity prices.
So quantitative easing was yet another instance of failed trickle-down
economics - by giving more to the rich, the Fed hoped that everyone would
benefit. But so far, these policies have enriched the few without returning
the economy to full employment or broadly shared income growth.
The Fed has been forthright in pointing out the limits of monetary policy to
help the economy. Fiscal policy could lead to stronger and more equitable
growth, but the Republican-led Congress has demanded austerity.
Still, there is more the Fed could do. It could do more to curb excessive
debit card fees and the anti-competitive charges that credit and debit cards
impose on merchants. These fees lead to higher prices and lower real incomes
of workers. It could also do more to encourage lending to small and
medium-sized businesses.
Easiest of all, it could choose not to raise interest rates. All policy is
made under uncertainty. In this case, however, the risks are one-sided:
Ordinary Americans in particular will be hurt by a premature rate rise, as
the economy slows, unemployment increases and there is even more downward
pressure on wages.
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