Washington, D.C. — Michael Madowitz, Economist at the Center for American Progress, released the following statement today after the Federal Reserve announced its intent to raise interest rates by 0.25 percent, or 25 basis points. The announcement arrives after the Federal Open Market Committee, or FOMC, met yesterday and today in Washington.
Underlying data show little inflationary pressure, so while the Fed’s decision to hike rates today isn’t surprising, it is disappointing. The Fed’s concerns about financial stability are justified, but there are a host of tools available to address systemic financial risk today that do not require slowing down economic growth and loosening a labor market that is finally delivering broad-based real wage gains to American workers.
While the Fed may have concerns about what one-party control of government means for economic policy, it should remain focused on the data. Here the story looks much as it did in the mid-1990s, when the Fed’s response to a debate about whether the United States had achieved full employment was to wait for data to show if we had. The result was a surge in employment and wages with little inflationary pressure. American workers are deeply frustrated at decades of slow wage growth, and tighter monetary policy without signs of inflation can only contribute to this frustration.
Earlier today, CAP released an issue brief that argues that the Federal Reserve should place a greater focus on the problem of steering the real economy toward full employment and higher wages, and use tools in the Dodd-Frank financial reform law to combat bubbles, rather than raise interest rates. Click here to read “Limitations of Monetary Policy as a Financial Stability Tool” by Marc Jarsulic and Michael Madowitz.
For more information on this topic or to speak with an expert, contact Allison Preiss at [email protected] or 202.478.6331.