×

Rate hike will hurt THIS group the most

The Federal Reserve claims that its decisions are data-driven and that as a technocratic, non-partisan institution, it bases monetary policy on the numbers. But an all-but-certain interest rate hike on Wednesday would directly contradict this narrative of an institution relying only on hard data.

By raising interest rates, the Fed is essentially declaring victory on the economic recovery. But despite a few recent jobs reports that show headline unemployment numbers dipping, a deeper look into the economic indicators reveal a recovery that is far from over. Indeed, for most people, it's hardly begun.


Minority factory workers
Getty Images

The data on labor slack in the economy are overwhelming: part-time involuntary unemployment is still double what it was before the recession; the quits rate – the percentage of people who leave their jobs voluntarily, which indicates the strength of the labor market -- remains very weak at below 2 percent; the percentage of the working age population that is employed is still lower than it's been at the lowest points of the last two business cycles; and the easiest, most direct measure of labor slack — wage growth — remains anemic and still well below target.

All of this data indicate it's far too soon to raise interest rates. If Fed officials paid attention to this data, they would see that there is still plenty of room for the economy to improve and for the labor market to tighten before they intentionally slow down the economy with higher rates. So what data are they using to outweigh overwhelming evidence of persistent labor slack?


The Fed says it wants to prevent high inflation. But inflation is still well below the Fed's already extremely low 2 percent target. To this, the Fed argues that rising inflation could happen – i.e, don't look at the numbers as they are, imagine the numbers as they might be. But Fed hawks have been raising these fears since 2011, and there's no more evidence of inflation now than there was then. With corporate profits sky-high, there is ample room for wage growth that does not lead to inflation. In short, the data provides no reason to raise rates.

When the Fed chooses to discount labor slack data and focus on future hypothetical inflation, its decisions are value-driven, not data-driven. The Fed could keep interest rates low, let the labor market tighten, and allow wages to rise. A tighter labor market would greatly benefit communities of color who have yet to experience a recovery. Black unemployment remains twice as high as white unemployment. If the Fed raises rates, it will take these gains away from the lowest income workers, sacrificing them to hypothetical, not actual, inflation.


Before voting to raise rates, Atlanta Fed President Dennis Lockhart should consider Krysten Tolliver, a member of RiseUp Georgia in Atlanta, who has to work two part-time jobs because her retail job at Sketchers does not provide full-time hours. So in order to survive she has to also work as a waitress for $2.13 per hour. With two jobs, Krysten contributes to the rosier headline employment numbers, but she can't predict her income, she can't afford her own place, and she can't go to school. That's what data points on involuntary part-time work actually translate into for millions of families.

Before voting to raise rates, New York Fed President William Dudley should consider how Aracely Cantos, a member of Make the Road New York in Queens, immigrated from Ecuador four years ago to build a better life, but still finds herself working 60 hours a week just to afford a room in an apartment with three other roommates because she can only find jobs that pay $8.75. This is not the life she dreamed of. Data show that stagnant, anemic wage growth is endemic, and Aracely's story is true for far too many working families.


Before any of the members of the Federal Open Market Committee vote to raise rates, they need to look at the actual data and consider how it corresponds to our lives and struggles. Do black lives and livelihoods matter to the Fed? Do they matter less than non-existent inflation? Should low-income families get a chance at a raise and better working conditions? Or should millions stay underpaid and overworked because of potential inflation? If the Fed is truly data-driven, the hard numbers reflecting the reality of persistent labor slack should outweigh inflation that is not yet real.

Commentary by Shawn Sebastian, a campaign manager at Fed Up, a coalition of community and labor-based organizations that works to bring the voices of low-income communities of color into decisions on monetary policy. Fed Up is an initiative of Center for Popular Democracy. Follow him on Twitter @shawnsebastian.