Should-Read: Josh Bivens: An evidence-based Fed would hold rates steady in September

Should-Read: Josh Bivens sounds a little… shrill this morning. I see the world much as he does. The longer I watch this, the more I think that the problems lie deep in Fed governance—specifically, in the failure of the Board of Governors and of Congress supervising the Board to insist that the “corporatist” structure of regional bank boards of directors be honored in reality by appointing people who genuinely know and will argue for policies that consider the interests of different economic groups. The Federal Reserve Act says that the one-third who are class “A” directors will:

represent stockholding banks…

and that the two-thirds who are class “B” and “C” directors will be:

chosen with due but not exclusive consideration to the interests of agriculture, commerce, industry, services, labor and consumers…

But when has this ever been honored in substance?

Josh Bivens: An evidence-based Fed would hold rates steady in September: “The Federal Open Market Committee (FOMC) meets today and tomorrow to determine whether or not to raise interest rates… http://www.epi.org/blog/an-evidence-based-fed-would-hold-rates-steady-in-september/

…The FOMC has raised rates three times since December 2016. The evidence arguing that these increases were wise or necessary was thin at best. That rationale for raising interest rates is to rein economic growth that threatens to drive down unemployment so low that workers will be empowered to achieve unsustainably large wage increases. The worry is that such wage increases could push price inflation over the Fed’s target rate. But the real-world data that exists on every link of this causal chain shows that such worries are baseless….

The rate increase that happened in June was particularly dispiriting for those hoping the Fed would continue to follow the evidence-based approach…. The economic data… gave plenty of reasons why a data-dependent Fed might worry that it was riskier to raise rates… than to stand pat for a couple of months. Yet the Fed raised rates. Data since June has been much softer. The Fed’s preferred inflation measure has decelerated significantly, and any upward creep of wage growth has stopped. There just is no case for continuing to raise rates in the face of this data.

While the outcome of any single FOMC meeting is not crucial for the American middle class, what this week’s meeting signals for the commitment of the Fed to genuine full employment is crucial…