WASHINGTON — The Federal Reserve’s decision this week to cut rates for the first time in more than a decade was driven, in part, by a recognition that policymakers have a role to play in the fate of American workers.
The U.S. economy continued its record run of hiring last month, as employers added 164,000 jobs, the Labor Department reported Friday. The job market has gained about 21.7 million workers since 2010, and the Fed now faces the lowest unemployment rate in nearly 50 years.
Despite the positive momentum, many people have remained on the sidelines or have seen only modest pay increases. By lowering rates, the Fed hoped to protect the economy against potential risks to ensure that it keeps growing. The move could foster a labor market that continues to draw in disadvantaged workers while prodding companies to raise wages.
“The best thing we can do for those people is to sustain the expansion, keep it going,” the Fed’s chair, Jerome Powell, said after the move. “That’s one of the overarching goals of this move — and all of our policy moves.”
The wealthiest also benefit from the Fed’s decision, since rate cuts push up stock prices, creating big gains for investors. But the central bank’s push to portray its policy as a win for rank-and-file workers highlights an evolution: The Fed is trying to be more attuned to the needs and attitudes of everyday Americans.
Some of the changes are superficial. Powell, previously referred to as “chairman” in the Fed’s post-meeting releases, is now a gender-neutral “chair.” The 17-member policymaking body is as diverse as it has ever been, with leadership roles held by two openly gay members, five women, one black member and one person with Indian heritage. The powerful Federal Reserve Bank of New York flew rainbow flags outside for pride month this summer, for the first time.
A visit to the Federal Reserve Bank of Atlanta’s Instagram account shows that it is following up its #dogsofthefed campaign with a #humansofthefed one, complete with inspirational stories and not-so-candid snaps.
But something more significant is happening under the surface.
An institution long shrouded in mystique and hemmed in by its desire to remain above the political fray is opening up. Fed research has long hit on diverse and even hot-button topics — from social mobility to global warming — but presidents at its 12 regional banks increasingly promote and publicize that work. They even occasionally take positions on issues like immigration and skills training.
Fed officials have also spent much of the year visiting community groups in places like Augusta, Georgia, and Camden, New Jersey, part of a widely publicized campaign aimed at convincing the public that policymakers are listening to workers’ concerns. Officials now regularly talk about unemployment rates by race and gender.
A political calculus is at play. The Fed needs to shore up public support at a time when President Donald Trump regularly criticizes its actions and when government bodies — especially opaque ones aligned with bankers — are anything but popular. It has come under congressional and popular pressure for being slow to diversify and not focused enough on the most economically disadvantaged.
Powell nodded to those challenges in a recent speech in Paris, saying, “Our audience has become more varied, more attuned to our actions and less trusting of public institutions.”
America’s shifting social discourse also enables the Fed’s evolution. Janet Yellen, the Fed’s first female leader, broached the topic of income inequality in an October 2014 speech, questioning whether it was consistent with American values. It was an unusual topic for a Fed leader to take up at the time and Republican lawmakers chastised her.
“You’re sticking your nose in places that you have no business to be,” Mick Mulvaney, a South Carolina representative at the time and now Trump’s acting chief of staff, told Yellen during her testimony to the House Financial Services Committee the next February.
Rep. Sean Duffy, R-Wis., said the speech showed political bias because Democrats were campaigning on the issue before the midterm election.
Five years later, Fed officials frequently talk about income inequality. In February at a forum with teachers in Washington, Powell echoed Yellen’s sentiments — but got no pushback.
“We have work to do to make sure that the prosperity that we do achieve is widely spread,” Powell said. “We need policies that can make that happen.”
Since Trump rode a wave of populism into the White House, issues like inequality and tepid wage growth for workers, once the domain of the left, have become shared concerns. Even in areas like gay rights, there has been a sea change. When the Federal Reserve Bank of Richmond, Virginia, flew a pride flag in 2011, it sparked controversy.
But the Fed’s push goes beyond politics. It is striving to communicate clearly, which makes monetary policy more effective. When borrowing costs fall because investors correctly anticipate Fed rate cuts, it becomes cheaper and easier for households and companies to get financing. Using the bully pulpit might prod other policymakers, who hold the reins on everything from education to immigration, into action. And conversations with ordinary people paint a clearer picture of the economy than aggregate data alone.
“You’re supposed to serve the people you represent, and you have to know what their experiences are if you’re actually going to serve them,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in a June interview.
Amid rising opportunity gaps, setting good policy requires hearing diverse experiences, she said. “The average is no longer sufficient, I would argue, for representing how the economy is playing out.’’
If rising inequality makes an expansive view of the economy prudent, low inflation makes it essential. The Fed has two jobs: maximum employment and slow and stable price increases. It has long seen its policy setting as a trade-off between the two; a strong labor market should, in theory, push wages and inflation higher. Recently, though, inflation has been soft despite very low joblessness.
That gives the Fed room to test how far the economy and job market can run. And if the Fed can spur higher wages, they might feed into higher prices, helping the central bank to clinch its inflation goal.
The Fed came around to the idea that it should experiment with a hot labor market slowly, and lifted rates nine times between 2015 and late 2018 to fend off the threat of inflation.
But it has long faced external pressure to keep rates low. Fed Up, an advocacy group started in 2014 and affiliated with the left-leaning Center for Popular Democracy, spent Yellen’s tenure pushing the central bank to hold off on raising rates so that unemployment could fall more.
More recently, Trump has made a sport of targeting the central bank, blaming the Fed for slowing the economic expansion.
“As usual, Powell let us down,” Trump said on Twitter after the Fed’s cut, which he saw as insufficient.
If the Fed can get the word out that it’s trying to serve the American people by keeping the economy healthy over time, it might ingratiate itself to its congressional overseers. In doing so, it could forestall any attempts to rein in the Fed’s independence.
Despite its efforts, the Fed is not exactly setting a new standard in modernity.
The institution has done limited research on climate change compared with its counterparts abroad, notably the Bank of England. And when issues are too divisive, officials steer clear. Powell declined to give concrete answers about minimum-wage proposals during recent testimony, telling lawmakers that “the question of the minimum wage is really one for you.”
That might be because openness still carries risk. Congressional overseers could slap the Fed on the wrist if they think it is straying too far over the political line. And the gap between a research-supported truth and a partisan judgment can be whisper thin in economics.
Crossing into contentious territory is a particular concern for Washington-based members of the Board of Governors, who are political appointees. Regional bank presidents, who serve their area’s interest, have more freedom — and are using it.
Daly, in San Francisco, has started a podcast that asks how communities cope with social divisions and labor market shifts. Researchers at her bank will hold the system’s first conference on the economics of climate change in November.
Robert Kaplan, the Dallas Fed chief, regularly makes a carefully worded case for permissive immigration policies and strong trading relationships with Mexico, focusing on the economic benefit that flows from those.
Patrick Harker, president of the Federal Reserve Bank of Philadelphia, often speaks out in favor of skills training as a way to improve employee productivity. He thinks it is a key part of his job.
“I think people realize that the problems we face — like the lack of workers — are pretty deep, and it’s not a partisan issue,” he said. “If we want growth to continue, we need to solve some of these more structural problems.”