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The Fed can't afford to ignore the 'anguished cry' of working people

A worker stands on the rear platform of a bottle car full of molten steel inside the ArcelorMittal steel mill complex in Cleveland, Ohio, U.S., on Friday, June 24, 2016.
Luke Sharrett | Bloomberg | Getty Images
A worker stands on the rear platform of a bottle car full of molten steel inside the ArcelorMittal steel mill complex in Cleveland, Ohio, U.S., on Friday, June 24, 2016.

The narrative emerging from the aftermath of the 2016 election is that Donald Trump won the U.S. presidency on the back of populist economic insecurity, elected by voters who felt left behind by a globalized economy. While the official unemployment rate continued its descent below 5 percent, Trump claimed a 'real' unemployment rate of 40 percent was driving the frustration.

That rate is drawn from Trump's overactive imagination - like many of Trump's ravings. But the fact that workers so readily believed him while responding so eagerly to his economic message reflects the reality that wages have been stagnant for decades and that we are nowhere near a galloping economy. You'd be hard-pressed to find many Americans who believe the economy is so strong that it needs to be slowed down by higher interest rates right now.

The economic discontent is grounded in data. New research from economists Thomas Piketty and Emmanuel Saez shows that the bottom half of the population in the United States has experienced zero growth since the 1970s.

Even though average national income per adult grew by 61 percent from 1980 to 2014, the average pre-tax income of the bottom 50 percent of individual income earners stagnated at about $16,000 per adult after adjusting for inflation. Meanwhile, income more than doubled for the top 10 percent, more than tripled for the top 1 percent, and for those in the top 0.001 percent, grew more than seven times.

This week, the Federal Reserve is nearly certain to hike interest rates for the second time in a decade, following last December's quarter-point increase in the federal-funds rate. This tightening of monetary policy is intended to slow down economic growth, reduce job creation, and prevent wages from rising.

In the wake of the 2016 election, do Fed officials really think that the American people want a slower, weaker economy than the one we have now?

"The Fed is one of the few institutions that remains largely independent from presidential interference and it must step up to the leadership that these times demand."

The Fed is now more important than ever. We are entering an era in which President-elect Donald Trump will control the Treasury Department and Republicans will control both houses of Congress. Federal public policy will be aimed at further enriching the 1 percent and leaving American workers out in the cold.

The Fed is one of the few institutions that remains largely independent from presidential interference and it must step up to the leadership that these times demand. The Fed needs to be an ally for working families during a period when they are otherwise under assault from every other part of government.

This week, Fed policy-makers will point to the November jobs report, showing a decline in unemployment to 4.6 percent from 4.9 percent the previous month, to justify a rate increase. Much of this decline can be attributed to people who've simply given up looking for work -- or, in economic parlance, a decline in labor force participation.

A far more accurate indicator of a full-employment economy is wage growth, which was weaker in November than it was in preceding months. Wage growth grew 2.5 percent in November on an annual basis, slower than October's 2.8 percent increase and September's 2.7 percent rise.

Wage growth is far from the 3.5 percent or higher we would expect in a full-employment economy.

Inflation, too, has hovered around 1 percent for most of the year, well below the Fed's already-low 2 percent stated inflation target. Tentative rises in September and October, to 1.5 percent and 1.6 percent respectively, hardly call for a pre-emptive interest rise.

If the Fed were to raise rates this week, it would be out of line with rates in Japan and Europe, which are at 0 or in negative territory, and above the U.K.'s rate of 0.25 percent. The central banks in these other countries realize that inflation is not a real threat and that tighter labor markets are a far more important goal.

The Fed should not only take into account the global context but also listen to the anguished cry of working and middle class voters. If the election has taught the Fed nothing else, it should be that we cannot afford to ignore the economic reality of working people.

Commentary by Ady Barkan, director of the Fed Up campaign, an initiative at the Center forPopular Democracy

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