Wage stagnation is a "clear sign" the economy is not ready for an interest rate hike, the New York Times editorial board claims.
In a recent editorial entitled “You Deserve a Raise Today. Interest Rates Don’t,” the Times argued that if the Federal Reserve raises interest rates now, it could slow job creation at a time when there are still too few jobs to generate substantial wage growth.
“Wage stagnation is a clear sign that the economy is not at full employment, which means it needs loose monetary policy, not tightening,” the Times wrote.
“Policy makers should be focused on strategies to raise wages, but the opposite appears to be happening. Just as Congress enfeebled the economy by switching too soon from stimulus spending to budget cuts, Federal Reserve officials have all but vowed to begin raising interest rates this year,” the editorial read.
“That move reflects a belief that the economy is returning to ‘normal,’ but it would be premature, because today’s norm is an economy that is incapable of generating and sustaining broad prosperity,” it said.
The Times called the Fed a “crucial player” in efforts to undo the decades-long trend of worker wages not growing in sync with the broader economy.
The newspaper noted that from 1973 to 2014, median worker pay rose 7.8 percent while overall productivity increased by 72 percent, a finding published Wednesday in a report from the liberal-leaning Economic Policy Institute, the Huffington Post
"Wage stagnation is a clear sign that the economy is not at full employment, which means it needs loose monetary policy, not tightening. An interest rate hike, by sending the wrong signal of economic health, could make it harder for labor groups and policy makers to assert the urgency of their efforts to raise pay," the Times stated.
Back in March, the Times called on the Fed to delay raising rates. The editorial board made a similar argument on the labor market, saying that "wages have barely budged throughout the nearly six-year old recovery."
The Times’ warning comes just days after the head of the International Monetary Fund, Christine Lagarde, cautioned the Fed that it shouldn't rush its decision to raise interest rates and should move only when it is sure the decision is unlikely to be reversed later.
Many emerging market economies are concerned that a Fed rate rise would trigger large outflows of capital from emerging economies into dollar-denominated assets, creating market turmoil that would hurt growth, Reuters reported.
Finance ministers and central bankers of the world's 20 biggest economies discussed the issue thoroughly at a recent meeting in Ankara, Lagarde told a news conference after the talks.
"It should really do it for good, if I may say," Lagarde said. "In other words, not give it a try and have to come back."
"So, what we have said is, the IMF thinks that it is better to make sure that the data are absolutely confirmed, that there is no uncertainty, neither on the front of price stability, nor on the front of employment and unemployment, before it actually makes that move," she said.
"And that would call for being in the curve, rather than necessarily ahead of the curve or indeed behind the curve."
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