The Federal Reserve may not have raised its benchmark interest rate on Thursday, but advocates of full employment still worry it could do so before the economy is ready.
Rep. John Conyers (D-Mich.), a senior House progressive, introduced a bill that same day that would make a future rate increase dependent on much lower unemployment than the U.S. is likely to achieve anytime soon.
Conyers’ proposed Full Employment Federal Reserve Act would obligate the Fed to define full employment as a maximum unemployment rate of 4 percent and “a labor market in which median wages are rising with worker productivity, job seekers can find work, and involuntary part-time work is at a minimum.” Short of meeting those criteria, the Fed would be unable to raise its influential interest rates.
“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,” Conyers said in a statement.
Conyers’ bill has six original co-sponsors -- all members of the Full Employment Caucus, a group of House members devoted to full employment policies. It has the backing of the Economic Policy Institute and the Center for Economic and Policy Research, two Washington-based liberal think tanks.
Unemployment now is officially 5.1 percent, a level that falls within the Fed’s full employment target. The central bank is prepared to raise interest rates with this level of joblessness, but did not on Thursday because of concerns that an economic slowdown in China and a drop in oil prices will depress inflation.
The Fed has a dual mandate to enact monetary policy that promotes both full employment and stable prices. The two-pronged mission, established by Congress in 1977, does not specify how the central bank should define those goals.
Critics of the Fed, mostly liberal, have said top Fed officials have used this discretion in recent decades to prioritize concerns about excessive inflation over maximizing employment. The choice is essentially zero sum: When the Fed increases interest rates to limit inflation, it does so by deliberately reducing economic demand, which reduces potential job growth.
Long before the financial market volatility that began in late August, these economists and activists opposed an interest rate hike, saying the official unemployment rate fails to account for people working part time involuntarily, or those who have given up looking for work.
Progressive pressure on the Fed to prioritize full employment has escalated in the past year with the launch of the Fed Up campaign, a coalition of groups led by the Center for Popular Democracy. Fed Up has mobilized low-income workers and people of color to lobby Fed officials against an interest rate hike and to make the central bank more accountable to the broader public.
Conyers joined Fed Up activists demonstrating on Thursday outside of the downtown Washington offices where Fed Chair Janet Yellen later held a press conference on the decision to maintain current interest rates.