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The Federal Reserve has kept its main interest rates, which banks use to lend to one another and determine the cost of credit throughout the rest of the economy, at or near zero since December 2008. The central bank has maintained the low rates so as not to disrupt the country's recovery from the largest financial crisis and recession in decades.

But several current and former senior economic officials told the Wall Street Journal earlier this month that the virtually unprecedented, prolonged period of near-zero rates risks depriving the Fed of the “ammunition” to address the next recession -- let alone another financial crisis. The Fed's primary method of economic stimulus, they note, has traditionally been cutting interest rates, something that is not possible if rates are already so low.

That could force the government to rely disproportionately on fiscal stimulus, these experts warn, holding a recovery hostage to a partisan ideological divide that has paralyzed Congress and shows no signs of abating. 

None of the officials who spoke to the Wall Street Journal explicitly called for an interest rate increase in order to keep the Fed’s options open for the next crisis. The main reason that Fed officials publicly provide for a rate hike is still that they believe price inflation is on track to hit the Fed’s 2 percent target. (William Dudley, president of the Federal Reserve Bank of New York, signaled on Wednesday that the the Fed was reconsidering a September interest rate hike after several days of volatility in the stock market.)

But Fed watchers believe that a desire to replenish the Fed’s proverbial firepower for the next recession is part of the motivation of Fed officials who want to “normalize” -- i.e., increase -- rates.

Narayana Kocherlakota, the outgoing president of the Federal Reserve Bank of Minneapolis,vehemently opposes an interest rate hike in the near future. Kocherlakota nonetheless believesthat his central bank colleagues’ perception that low interest rates have given the Fed less “monetary policy ‘space’” will prompt them to raise rates sooner and higher than is desirable.

Jack McIntyre, a portfolio manager and senior research analyst at Brandywine Global, a Philadelphia-based asset management firm, also said those concerns are part of the Fed’s calculus. “Yes, the [Fed would] like to remove emergency-level monetary stimulus to build up ammunition for the next slowdown in the U.S. economy,” McIntyre told The Huffington Post. “It would be a net positive to move us off of zero interest rates to build up some ammunition so they can cut them when it slows down.” 

Many economists insist, however, that these fears are misplaced. They instead argue that the best way for the Fed to prepare for the next recession is to prevent the economy from slowing down too soon in the near term.

“I would much rather have the Fed engage in slowdown and recession prevention by getting us to reach levels at which a rate hike would not be premature,” Josh Bivens, research and policy director at the left-leaning Economic Policy Institute, said earlier this week.

If the Fed raises rates in the coming months to give itself leeway for the next recession, Bivens warned, it risks “creating the crisis you are trying to have tools to fight against.”

Bivens is one of a number of liberal-leaning economists and activists who argue that the economy is still far from full employment. They want the Fed to wait for widespread wage growth to take hold before raising rates, and they were in Jackson Hole, Wyoming, on Thursday and Friday to make their case to Fed officials directly.

When the economy slows down more substantially, Bivens said, the Fed could still stimulate growth using quantitative easing, the massive asset purchasing program it initiated during the most recent recession after interest rates had already bottomed out. 

There are other even less conventional techniques available to the central bank, like instituting negative interest rates, which would effectively charge banks for depositing their money rather than lending. It is an idea that former Fed chair Ben Bernanke told The Wall Street Journal has merit.

Richard Parker, an economist at Harvard, agrees with Bivens and other economists that middle- and lower-income workers have yet to share in the gains of the current recovery, but is less worried about the damaging effect of a rate hike.

Instead, Parker believes that lawmakers and activists concerned about low wage growth should focus on changing the regulatory and fiscal policies that he believes would have a bigger impact. 

Parker supports a “retained earnings tax” that would penalize corporations for hoarding cash for stock buybacks and other actions “meant to bolster share prices (and hence bonuses)” that do little for the real economy.

And while Parker acknowledges that partisan gridlock makes the prospects of pro-growth fiscal policy dim at the federal level, he sees the success of efforts to raise the minimum wage at the state and local level as a model for incremental progress. 

“It is beginning to look like the early Progressive Era, when states were the laboratories for democracy,” he said. 

Source: Huffington Post

Nightly Business Report - November 11, 2014

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Chicago spends 39 percent of its municipal budget on policing, while New York spends just eight percent and Los Angeles spends 26 percent, says the Center for Popular Democracy. This means the city has less funds for things like schools and social services.

Read the full article here.

The New York Times - August 13, 2013, by J. David Goodman - As the Police Department performed a mounting number of stops on New York streets, voices of opposition, slow and scattershot, struggled to be heard.

Complaints, mostly from minority areas, never quite coalesced into a movement. Police officials and city leaders casually dismissed opponents, denying that the stops were race-based and pointing to the plummeting crime rate as justification for the tactics.

The stops continued to rise by the tens of thousands, as police officials pushed to drive crime levels even lower. And although the dialogue never changed, the slow unmaking of the stop-and-frisk strategy had quietly begun.

In a 16th-floor conference room in TriBeCa, roughly 40 different groups of researchers, lawyers and community activists gathered in June 2011 to plan a unified political attack on the policing practice to go along with the one being mounted in the federal courts.

The groups coalesced under one name, Communities United for Police Reform, fanning out into neighborhoods with heavy police activity and becoming a regular and loud presence at rallies on the steps of City Hall and outside the federal courthouse in Manhattan. The mantra: Change the Police Department.

Their efforts, backed by $2.2 million in grants from George Soros’s Open Society Foundations, set the stage for a stunning repudiation of what has become the department’s signature street-level tactic, long defended by successive mayoral administrations.

In the City Council in late June and in a federal court on Monday, the Police Department suffered severe setbacks to its crime policy, and is now facing a court-ordered monitor,two police oversight bills and the possibility that its perceived legacy of a significant decline in crime may come with an asterisk.

“They redefined it successfully,” said Paul J. Browne, the department’s chief spokesman, crediting advocates from the Communities United for Police Reform, which includes the civil liberties group, the Center for Constitutional Rights, that brought the federal suit, Floyd v. City of New York.

“By using data we’re required to produce,” Mr. Browne said, the advocates managed to reframe the debate over the stop-and-frisk policy as a numbers-oriented calculation of how often the police interactions resulted in arrests or summonses.

In a vast majority of the recorded stops, officers cited a reason other than fitting the description of a suspect as being the basis. And in nearly 90 percent of the cases, the person stopped was neither arrested nor given a summons.

“Stop-and-frisk isn’t stopping criminals,” said Donna Lieberman, the executive director of the New York Civil Liberties Union. “It is stopping innocent people.”

The battle over police stops in New York has many origins, but most see its beginnings in the killing of Amadou Diallo by a team of specialized police officers, who shot the man as he stood in the vestibule of his Bronx apartment building in 1999. That violent encounter — in the course of a stop on a darkened street — led to a report by Eliot Spitzer, then the state attorney general, titled “The New York City Police Department’s ‘Stop and Frisk’ Practices.”

“Obviously the killing of Diallo was a flash point,” said Andrew G. Celli Jr., who as the head of the civil rights bureau under Mr. Spitzer worked on the report. “But underneath it was a seething sense that people were living in a police state.”

The report shined a light on an area of policing that remained largely cloaked during the administration of Mayor Rudolph W. Giuliani, a time when data about police stops were not public, and advocates sparred more often with the department over individual actions by officers than over broad policy.

Once it became clear that the department collected detailed data on stops — from the UF-250 forms filled out by officers for each interaction — a push began for more access. The Council passed a law in 2001 requiring the department to release data on stops, including by race.

“I don’t think anybody understood at the time how important that legislation was,” said Ms. Lieberman, of the civil liberties union. “But this is a classic example of how a fight over transparency supports a campaign for reform.”

The first release of data, for stops in 2002, showed that a little more than 50 percent of the stops were of blacks and about 31 percent were of Hispanics, roughly the same as during the period studied in the Spitzer report.

To the department, those numbers made sense, because they roughly matched the racial breakdown of suspects identified by witnesses or victims of crimes. It is an argument still made forcefully by Mayor Michael R. Bloomberg, as it was by Mr. Giuliani when he was mayor.

Yet after taking office, Mr. Bloomberg and his police commissioner, Raymond W. Kelly, seemed willing to move past the issue. The city settled a lawsuit, brought shortly after the Diallo killing by the Center for Constitutional Rights, and the unit responsible for the shooting was dissolved. Under terms of the settlement, it modified the UF-250 form and created a written policy against racial profiling.

At the same time, the number of stops quietly rose each year.

The police shooting of Sean Bell, in 2006, set the stage for a new confrontation with advocates, who began asking again about data on stops. The New York Civil Liberties Union found that the department had not released it to the Council in years.

When the new stop data were finally released in 2007, the numbers were startling: 508,540 stops in 2006, up from 97,296 four years earlier. Civil rights lawyers filed the Floyd suit the next year. (The suit takes its name from David Floyd, a Bronx man who said he had been stopped more than once by the police and who served as lead plaintiff in the class action.)

Advocates from different groups — including, among others, the Legal Aid Society, Make the Road New York, the Malcolm X Grassroots Movement, the NAACP Legal Defense Fund, and the Center on Race, Crime and Justice at John Jay College of Criminal Justice — began meeting informally.

But it was not until the first large meeting in June 2011 at 75 Varick Street, and the creation of the single coalition, that momentum began to gather, said Joo-Hyun Kang, the coalition’s director. “We’re talking about a year and a half, which is not a long time period to pass what I’d call landmark legislation,” she said, referring to a pair of oversight bills passed by the Council. (The bills were vetoed by Mr. Bloomberg; an override vote is planned for this month.)

For Mr. Celli, the former state civil rights lawyer, the Police Department missed several opportunities to change itself in ways that might have avoided a public backlash.

“They should have embraced the I.G. and sought to frame exactly what the person’s powers would be,” he said, referring to one of the bills creating an inspector general for the police. The other, a more direct response to the stop-and-frisk policy, would expand the ability of New Yorkers to sue the department over bias-based profiling.

The federal judge in the stop-and-frisk case, Shira A. Scheindlin of Federal District Court in Manhattan, was more critical of the police, finding the department to be “deliberately indifferent to the discriminatory application of stop and frisk.”

Nonetheless, by last year, the department began to change, significantly dropping the number of stops. Commissioner Kelly denied that political pressure or the court case led to the decline, saying it had been the result of redeployment and better training.

Whatever the explanation, after record highs in the first quarter of 2012, the number of stops plummeted to near record lows by early 2013.

Jeffrey A. Fagan, a Columbia University law professor who testified against the city in the Floyd case, said the Police Department did not open itself up for self-criticism on the issue of stops.

“They became defiant about sticking to the story,” he said. “And they dismissed any questioning as being grumpy old civil rights advocates.”

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