Thursday, September 17, 2015

Conyers and Full Employment Caucus Members Introduce Legislation to Strengthen Federal Reserve System’s Jobs Mandate

WASHINGTON–Today, Representative John Conyers, Jr. (MI-13), with support from 6 members of his Congressional Full Employment Caucus, introduced the “Full Employment Federal Reserve Act of 2015.” The bill instructs the Federal Reserve System to target a 4 percent unemployment rate and other indicators of a strong labor market before acting to slow the economy by raising interest rates.

Sean of the U.S House
of Representatives
John Conyers, Jr.
“My new legislation will help to ensure that Federal Reserve policymakers prioritize job creation and wage growth for workers above Wall Street jitters about possible inflation. It is unacceptable for any branch of our government to take any action to slow our economy before all Americans have the opportunity to experience the jobs recovery and see meaningful wage growth,” said Rep. Conyers.

Congress amended The Federal Reserve Act in 1977 to mandate that the Federal Reserve System promote the goals of “maximum employment” and “stable prices,” which became known as the “dual mandate.” As a result, Federal Reserve board members seek to determine what is the lowest unemployment rate consistent with stable inflation (known as the “nonaccelerating inflation rate of unemployment,” or NAIRU).

Rep. Conyers’ new legislation amends the Federal Reserve’s mandate to define “maximum employment” as “as an economy with an unemployment rate of not more than 4 percent,” in addition to “a labor market in which median wages are rising with worker productivity, job seekers can find work, and involuntary part-time work is at a minimum.”

The bill also replaces “stable prices” with “a stable rate of inflation,” to comport with the consensus among economists that some level of inflation is necessary and healthy.

"The Fed acted admirably to stem the damage done by the Great Recession and to spur recovery until now. But the job is far from finished—the economy remains far from genuine full-employment and this means that the Fed's mandate remains unfulfilled,” said economist Josh Bivens, Director of Research and Policy at the Economic Policy Institute.

While the headline unemployment rate has lowered to 5.1 percent, other indicators suggest a weaker job market. 6.5 million Americans are forced to work part-time because they can’t find full time work, a figure that is higher than at any time since the early 1990s. Another 3.5 million “missing workers” have given up searching for work due to poor job opportunities, and as a result are not included in the unemployment rate. Nominal wage growth, arguably the most important indicator of a strong labor market, remains stagnant.

"Congress gave the Fed a dual mandate to pursue full employment and price stability,” said economist Dean Baker, Co-Director of the Center for Economic and Policy Research. “In the last thirty five years it has not paid sufficient attention to the full employment part of this mandate. Specifying a 4.0 percent unemployment rate as a target, the same rate the economy sustained as a year-long average in 2000, should act to clarify the Fed's mission.”

Since the Great Recession, the American economy has consistently had an unemployment rate higher than the Federal Reserve’s NAIRU and an inflation rate below the Federal Reserve’s target. Overall, since 1980, the American economy has been operating at an unnecessarily high rate of unemployment70 percent of the time, according to estimates of the NAIRU by the Congressional Budget Office.

Conyers announced the legislation earlier today at a press conference hosted by the Fed Up Coalition, which urged the Federal Reserve not to prematurely raise interest rates, a view that has been echoed by former top economists for Presidents Clinton and Obama, Lawrence Summers and Gene Sperling, Nobel Prize winning economists Joe Stiglitz and Paul Krugman, the NY Times Editorial Board, thechief economist of the World Bank, and many others.

Original co-sponsors of the measure include Full Employment Caucus Co-Chairs Frederica S. Wilson (D-FL) and Marcy Kaptur (D-OH), as well as Full Employment Caucus Members Keith Ellison (D-MN), Sheila Jackson Lee (D-TX), Henry C. "Hank" Johnson, Jr. (D-GA), and Donald Payne, Jr. (D-NJ).

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