House Democrats put forward a new bill Thursday aimed at preventing the Federal Reserve Board of Governors from raising interest rates until the unemployment rate drops to 4 percent.
The Full Employment Federal Reserve Act, from Rep. John Conyers, D-Mich., would essentially specify that the Fed’s mandate to achieve “maximum employment” means a 4 percent unemployment rate. That’s well below the view of most economists that full employment is achieved when the rate is around 5 or even 5.5 percent.
A 4 percent unemployment rate is one that many economists would likely see as an inflationary factor, which could interfere with its other mandate, which is “stable prices.”
Nonetheless, Conyers said this change is needed to ensure rates don’t rise too quickly, which could shut off economic growth.
“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,” he said. “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.”
His bill would also require the Fed to strive for an economy in which “median wages are rising with worker productivity, job seekers can find work, and involuntary part-time work is at a minimum.”
While the current unemployment rate is 5.1 percent, Republicans and Democrats alike have been worried about the millions of people who have stopped looking for work. Conyers also noted that 6.5 million people are working part-time because they can’t find full-time work, which means the unemployment rate is really higher than the official 5.1 percent used by the government.
The Fed met this week and had the option of raising interest rates for the first time since before the financial crisis, but opted to keep them near 0 percent, a move many criticized as a reaction to the falling stock market in August.
