You don’t often see the editorial board of the nation’s most prominent newspaper tell the Federal Reserve to hold off on an anticipated course of action.
But the New York Times felt compelled to take a firm stand against raising interest rates, citing problems with the central bank’s benchmarks for employment and inflation.
Both the jobless rate and inflation are getting closer to the benchmarks the Fed set for initiating the first increase in the federal funds rate since 2008, the onset of the financial crisis and Great Recession.
The Fed has signaled that an unemployment rate around 5.4 percent would be consistent with holding inflation to a target rate of 2 percent on average, the NY Times’ editorial board states.
“In practice, it has been several decades since those relationships have held — in part, because the Fed has usually been too quick to raise rates when wages have started to rise,” the Times states. “This has led to a long-term decline in the share of income that goes to worker pay and a long-term increase in the share that goes to stockholders and executives.”
On Friday, the jobs report soundly beat expectations, with the U.S. economy adding 295,000 jobs last month, and the unemployment rate falling to 5.5 percent. Following the report, some economists concluded that the economy had come close to the Fed’s definition of “full employment.” Many are predicting that Fed policy makers will begin raising rates this summer.
However, the jobs report also found that income remains stagnant. “Raising rates in the near term would lock in high unemployment among minorities and wage stagnation,” the Times said.
Friday’s jobs report found that average hourly earnings increased by only 3 cents to $24.78 after a healthier 13-cent increase in January. For the 12 months ended Feb. 28, wages increased 2 percent.
The Times’ editorial board: “The Fed should hold off until wages are growing in tandem with inflation and productivity. In the meantime, it should use its regulatory tools to ensure that low-interest-rate credit is put to productive uses and not speculative bubbles. Of course, Congress should do its part for job creation and economic growth — say, by financing infrastructure projects. Its inability to act is yet another reason the Fed has to get its response right.”