For some, the Fed’s decision signifies an economy that has recovered from the crisis of 2007-2008. For others, the move is disastrous, and based on a superficial and wrong-headed interpretation of our current economic climate.
Janet Yellen, the chairwoman of the Fed, said at a news conference on Wednesday that “although it is not complete,” the recovery from the Great Recession has “clearly come a long way.”
By some measures, she is correct. According to the Center for American Progress, “job growth has been particularly robust over the past year, with an average growth of about 230,000 jobs per month.”
Some, while recognizing that the economy has indeed progressed, are far less optimistic than Ms. Yellen.
Dean Baker, in a statement for the Center for Economic and Policy Research, called the Fed’s decision to raise rates “an unfortunate move in the wrong direction.”
Baker goes on to note that a look beyond narrow conceptions of unemployment reveals measures that are, in many ways, “at near recession levels.”
“The percentage of the workforce that is involuntarily working part-time is near the highs reached following the 2001 recession,” Baker observes. “The average and median duration of unemployment spells are also near recession highs. And the percentage of workers who feel confident enough to quit their jobs without another job lined up remains near the low points reached in 2002.”
Baker also writes that, when employment rates rather than just unemployment rates are taken into account, the labor market appears far weaker than proponents of the rate hike suggest.
Wages are another important measure: “While wage growth has edged up somewhat in recent months by some measures,” Baker notes, “it is still well below a rate that is consistent with the Fed’s inflation target [which is 2%]. Hourly wages have risen at a 2.7 percent rate over the last year. If there is just 1.5 percent productivity growth, this would be consistent with a rate of inflation of 1.2 percent.”
In an op-ed piece for the New York Times nearly two weeks before the rate hike, economist Paul Krugman also expressed disagreement with the Fed’s direction. He notes that while unemployment is low, this “has a lot to do with a decline in the fraction of the population looking for work.”
Krugman also expresses concern about the “weakness of wages,” and notes that while the economy seems to be moving in a more positive direction, things “may indeed get worse, which is why the Fed’s likely rate hike will be a mistake.”
Gerald Epstein, Professor of Economics at the University of Massachusetts, Amherst, called the Fed’s decision an act of “twisted logic” that serves Wall Street “at the expense of the real economy.”
Democratic presidential candidate Bernie Sanders also weighed in, writing on Twitter that “the Fed’s decision to raise interest rates is bad news for working families” in an economic climate in which “millions are working longer hours for lower wages.”
“The Fed,” he added in a later tweet, “should act with the same sense of urgency to rebuild the disappearing middle class as it did to bail out Wall Street banks.”
Sanders added in a press release that, “At a time when real unemployment is nearly 10 percent and youth unemployment is off the charts, we need to do everything possible to create millions of good-paying jobs and raise the wages of the American people.”
With the decision to raise rates now official, however, all even the most fervent critics can do is wait and see.
One can only hope that the Fed sticks to its commitment to “allow future rate hikes to be guided by the data.” Meaning, if the hike fails to produce the desired results, yesterday’s hike “may be the last one for some period of time.”