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Bernie Sanders Calls Fed Rate Hike Bad News for Working Families

Economists, warning of impact to low wage workers, said rate increase is a 'mistake'

Lauren McCauley

The Federal Reserve's announcement on Wednesday that it would raise interest rates 0.25 percent was met with strong criticism on Tuesday with Sen. Bernie Sanders blasting the decision as "bad news for working families" and the country's "disappearing middle class."

The rate hike is the first since the 2007 financial crash, and economists have long-warned that employment and wage growth are still far too low to justify the increase.

"At a time when real unemployment is nearly 10 percent and youth unemployment is off the charts, we need to do everything possible to create millions of good-paying jobs and raise the wages of the American people," Sanders said.

"When millions of Americans are working longer hours for lower wages, the Federal Reserve’s decision to raise interest rates is bad news for working families," he added.

Economists are concerned that Wednesday's rate hike will imperil the country's incomplete economic recovery by stagnating job growth and wages. This mostly threatens those at bottom of the employment pyramid, who were most impacted by the recession—and even in the recovery saw national income shift four percentage points from wages to corporate profits. 

In a statement on Wednesday, the Fed defended the rate increase, saying that "economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further." Further, it said that a range of recent labor market indicators, including "ongoing job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year."

However, Dean Baker, economist and a co-director of the Center for Economic and Policy Research (CEPR), argued that while the unemployment rate is not "extraordinarily high," other key measures of the labor market border on recession levels.

For instance, the percentage of workers who are "involuntarily working part-time is near the highs reached following the 2001 recession," Baker notes. At the same time, "the percentage of workers who feel confident enough to quit their jobs without another job lined up remains near the low points reached in 2002."

What's more, further examination of employment rates finds that "the percentage of prime-age workers (ages 25-54) with jobs is still down by almost three full percentage points from the pre-recession peak and by more than four full percentage points from the peak hit in 2000," Baker continues.

"This does not look like a strong labor market," he said.

Echoing those concerns, Josh Bivens, research and policy director with the Economic Policy Institute, said that the only effective way to guarantee a full economic recovery with "strong and equitable wage growth" is through "aggressive pursuit of full employment."

He writes:

This means aggressively plumbing the depths to which unemployment can fall—tightening policy and slowing growth only when signs of durable increases in wage and price inflation actually appear in the data. Aggressive pursuit of full employment is the only policy measure that has delivered strong and equitable wage growth in the past generation, and the vast majority of American workers are unlikely to see any real wage increases absent it.

Levying the same critique, that the Fed's decision was based on the goal of reaching so-called "normalization" of the economy, rather than actual statistics, Baker added: "Recent economic data suggest that today’s move was a mistake. Hopefully the Fed will not compound this mistake with more unwarranted rate hikes in the future."

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