The Federal Reserve۪s Role in Fighting Poverty

When it comes to anti-poverty programs, the adjustment of interest rates is likely not the first thing that comes to mind. However, the U.S. Federal Reserve has incredible power over the economic climate and consequently the financial security of Americans.

Recognizing this reality, a growing number of left-leaning experts and advocates have begun promoting monetary policy as a crucial tool in the fight against poverty.

The Federal Reserve has a dual mandate from Congress to ensure maximum employment and stable prices. During economic downturns, it will normally lower interest rates or use other more drastic measures to spur demand and create growth.  When the economy is growing and appears to be in danger of overheating, the Federal Reserve will raise interest rates to help stave off inflation.

With inflation low over the past several years, a number of commentators have argued that the Federal Reserve should refrain from raising interest rates in the near future — even as the economy continues to pick up steam. By continuing to drive the unemployment rate even lower, these individuals argue, the Federal Reserve can boost wages by creating a climate in which employers need to raise pay in order to attract workers.

Roosevelt Institute Fellow Mike Konczal identifies the Federal Reserve as the key institution in promoting wage growth. If Federal Reserve Chair Janet Yellen raises interest rates too early, “she will slow down the economy, meaning labor will never regain the bargaining power it needs,” Konczal cautions.

A number of other left-leaning thinkers as well as some from the right have made similar arguments.

Perhaps most notably though, is the extent to which more populist organizations have begun to organize around this seemingly technocratic issue.

Fed Up a new coalition-based campaign with members such as the AFL-CIO and Center for Popular Democracy is advocating for a more “transparent and democratic Federal Reserve” and monetary policies that create a “strong and fair economy.”

In November 2014, in what former Federal Reserve Vice Chair Alan Blinder termed a “big deal,” Janet Yellen and other members of the Federal Reserve۪s board of governors met with Fed Up representatives.

In their conversation, the group emphasized high unemployment among minority populations and slow wage growth as a reason for continued diligence. “The Federal Reserve is too important of an institution to be insulated from the voices and perspectives of working families,” a spokesperson from the Center for Popular Democracy explained.

Given the recent activity among progressive thinkers and advocates, it will be interesting to see how the debate over Federal Reserve policy evolves over the next several months — especially with an interest rate hike potentially on the horizon. Spotlight will continue to monitor the issue in the months ahead.

Posted by Luke
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Here at Out of the Spotlight, we offer a behind-the-scenes look at the latest news and information essential to anyone working to fight poverty. From key political appointees to clashes over policy, we cover the news that doesn’t always make the evening news. Check out Out of the Spotlight for our take on the twists and turns of the latest political developments and their impact on poverty reduction. Topics and ideas are welcome! Just contact mlaracy@aecf.org or shelley@watersboots.com.