Lindsay Owens: It’s Time for the Fed to Take its Full Employment Mandate Seriously

June 14, 2022 Groundwork Collaborative

Remarks as delivered at the Fed Up Stakeout for Full Employment

My name is Lindsay Owens and I am the executive director of the Groundwork Collaborative, an economic policy think tank and advocacy group working to build an economy that works for all of us. 

It’s great to be here with the incredible folks at the Fed Up Campaign outside the Federal Reserve Building today as the Federal Open Market Committee kicks off its two-day meeting.

I’m here to share a simple message: Raising interest rates alone is not going to fix the inflation crisis – but it will undermine our economic recovery. 

Let’s talk about why. And we can start by being honest about what interest rate hikes can and cannot do.

  • Will rate hikes end Russia’s invasion of Ukraine that is keeping energy prices high? No. 
  • Will rate hikes reopen Covid lockdowns in China that are gumming up the supply chain? No.
  • Will they slow the effects of climate change that are flooding manufacturing plants,  scorching crops, and disrupting trade routes? No. 
  • Will hiking interest rates stop the corporate profiteering and price gouging that is accelerating price hikes and allowing companies to chart seventy-year highs in profit margins? No. 
  • Will interest rate hikes stop companies like Abbott from cutting corners and pinching pennies on production, sending the price of baby formula soaring and putting the lives of newborns at risk? No.

This inflation crisis is not a pandemic blip – it is decades in the making – the result of policy choices that weakened our supply chains and our economy, and prioritized giant companies over workers and consumers. And none of this is going to be reversed with a 50 basis point hike, or even a 75-point one. 

In fact, we already know this. Despite the fact that the Fed began taking a more aggressive stance on inflation beginning in November — inflation has only grown! So far interest rate hikes have not cooled inflation….But they have started to have predictable negative consequences for workers and families across the country.

So we’ve talked about what interest rate hikes can’t fix. Now let’s talk about what will happen if the Fed moves forward with additional rate hikes at an aggressive clip following today’s meeting.

First, interest rate hikes will slow wage growth. For some proponents of rate hikes, slowing wage growth is actually the whole point. In fact, Larry Summers, the architect of the jobless recovery, recently told the Washington Post that he didn’t think we could fix inflation without a QUOTE “meaningful reduction in wage growth.” 

Let me quickly translate that for those who aren’t following economist jargon: Larry Summers wants to fix inflation by making you poorer. 

Second, raising interest rates will throw a wet blanket on the strong labor market that we’ve built to help people through the pandemic. And it’s going to hurt Black workers and other workers who have been historically excluded from the labor market the most.  

Because even as our economy recovers and overall unemployment ticks down, Black workers are still facing unacceptably high unemployment at 6.2% – nearly double that of white workers. 

It’s time for the Fed to take its mandate for full employment and decent wages seriously. That means everyone who wants a job can have a job – period. 

Lastly, raising interest rates will increase the risk that our economy goes into a recession. The only thing worse than high inflation and low unemployment is high inflation and high unemployment – because our monetary policy has resulted in a massive slowdown of our economy.  

We can all agree that getting inflation under control should be a top priority for our leaders. But interest rate hikes have failed us historically, they’ve failed us so far this year – and there is little evidence to suggest we can expect anything different in the future. 

This week, the Federal Reserve faces an important choice: whether to keep a long-term policy focus on full employment and build an economy that works for all of us or take overly aggressive action that will push our economy into a recession and send unemployment skyrocketing. 

Let’s hope they make the right choice.