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Two Federal Reserve bank presidents on Wednesday met separately with community and labor groups that are pushing for continued near-zero interest rates just as U.S. central bankers appear to be only weeks away from raising them.

Representatives of the groups said that by airing their concerns about labor market health to Richmond Fed President Jeffrey Lacker and Dallas Fed President Rob Kaplan, they hope to help shape policymakers' understanding of the economy, if not necessarily their views on monetary policy.

The views of Kaplan, the new president of the Dallas Fed, are unclear, but his predecessor Richard Fisher made the regional Fed bank's name synonymous with opposition to easy monetary policy.

Lacker is a policy hawk who cast the lone dissents on the Fed's decisions in September and October to continue the central bank's low-rate policies.

"Our expectation isn't that we are going to be able to change his mind," said Michael De Los Santos, who is organizing the meeting with Lacker.

To Lacker, the near-normal unemployment rate of 5.1 percent means the labor market no longer needs the lift provided by exceptionally low interest rates.

"We want to be able to present our side of the statistics," said De Los Santos, who is director of operations at Action NC, a community and activist group. Attending the meeting will be a young man from Charlotte who has struggled to pay for college and is worried about finding full-time employment, and a fast food worker from Richmond, Virginia who has trouble making ends meet, he said.

Kaplan will likewise meet with workers who have struggled to find adequate jobs and income, said Shawn Sebastian of the Center for Popular Democracy, which organized the meeting in Dallas.

A Dallas Fed spokesman did not immediately respond to a request for comment. A Richmond Fed spokesman confirmed the meeting and deferred any comment until after it is over.

Including today's meetings, members of the so-called Fed Up Coalition have had sit-down meetings with nine of the Fed's 12 regional Fed bank presidents, and four of the five Washington-based Board of Governors. (Reporting by Ann Saphir in San Francisco; Editing by Christian Plumb)

Source: Reuters

Community organizer Wintana Melekin was grabbing a soda in late June at a coffee shop near her office when she heard Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, had just been in.

Seeing her chance, she dashed out the door after Kashkari, caught up and asked if he would meet with her organization, Neighborhoods Organizing for Change, to discuss racial and economic disparities in the Twin Cities.

He agreed, and to confirm that he meant it, retweeted Melekin’s tweet saying he was willing to meet.

On Wednesday, the meeting happened. Kashkari sat down with about a dozen people at NOC’s offices in north Minneapolis and committed to an ongoing collaboration between the Minneapolis Fed and some of the state’s most outspoken critics of a status quo in which blacks are not enjoying the benefits of economic growth.

“Some of the racial disparities are a crisis, and we need to treat them like a crisis,” Kashkari said. “One of the things I learned in 2008 is you don’t tackle a crisis with incremental solutions. You tackle a crisis with overwhelming force, and so if this is a crisis, and I think certainly parts of this are, then we need to bring overwhelming force.”

Kashkari, who became president of the Minneapolis Fed at the start of the year, is a former investment banker and Treasury official in the George W. Bush administration. He was appointed the first chief of the bank bailout program known as TARP at the end of the Bush term and start of President Obama’s administration.

Though his everyday work is at the very top of the national economy, Kashkari has a record of trying to understand its depths. As a candidate for governor in California two years ago, Kashkari spent a week living on the streets of Fresno, a midsize city, with just $40. He tried unsuccessfully to find work during that week and wound up in a homeless shelter.

It’s not clear how Kashkari and the nation’s central bank can directly address the challenges that were brought up at Wednesday’s meeting. The Fed controls interest rates, with the goal of creating maximum employment, but monetary policy can’t be targeted at segments of the population or certain states or cities. As Kashkari pointed out, black unemployment in the United States stubbornly tracks at roughly twice the level of white unemployment.

“There’s something structural in the U.S. economy, in good times and bad, that black unemployment is almost always twice as high as white unemployment,” Kashkari said.

He said driving unemployment downward will help everyone, and he is for low interest rates as long as they aren’t driving inflation upward. But he has not heard a satisfying answer for why the disparity in Minnesota is worse than in most places, though he committed to working with NOC to understand why it is.

From NOC’s perspective, the meeting with Kashkari was historic. Never before has a Fed president met face to face with its members in Minneapolis. As local ambassadors for the national Fed Up campaign, the organization has a fresh interest in the Fed and has taken the position that interest rates should remain low.

For Anthony Newby, the head of the organization, the meeting was a good starting point. Kashkari’s comment that the economic plight of black Minnesotans is a crisis requiring a response of “overwhelming force” was particularly satisfying.

“It sets the tone for how the Fed could, in unusual and unorthodox ways, use its power and position to solve some of these equity problems,” Newby said.

Kashkari agreed to spend a day with Rosheeda Credit, a mother of five at the meeting who said she struggles to pay for rent and child care. “The crime rate is high here, and the rent is high here and we’re not getting paid enough to work here,” Credit said.

He heard from Tenice Hodges, a former teacher who moved back to Minneapolis two months ago to help her sister’s family. She is living out of her car until she can get a teaching job because she can’t afford the city’s high rents with her restaurant wages.

“We are struggling out here,” Hodges said. “Yes, I’m employed. I work every day. But can I go out and get an apartment right now? No. I don’t have $1,100 by myself, or $2,200 for a deposit.”

Kashkari committed to looking closely at the résumés of people of color that NOC submitted for various board appointments at the Minneapolis Fed. He also said he will work with NOC on research and meet with people from the organization again in the future. He also committed to attending a workshop put on by groups affiliated with NOC at the Jackson Hole Economic Policy Symposium, an annual conference in Wyoming where central bankers from around the world gather.

Kashkari, who has drawn national attention by calling for a transformative solution to the problem of banks that are too big to fail, explained that his role as a regional Fed president is to understand the problems people face in his district. While the tools of monetary policy are limited, and much of the heavy lifting that causes social change much happen in Congress, he said it is important for him to meet with people as he did Wednesday to understand their concerns.

“I appreciate that you think it is business as usual,” Newby told Kashkari. “I don’t think it is business as usual.”

By ADAM BELZ

Source

Auditing the Federal Reserve, a financial reform long pushed by the libertarian right, just got a boost this week from an unexpected quarter: A respected Dartmouth economist who issued a new proposal to impose transparency and oversight on the nation’s powerful central bank.

Though largely dismissed by mainstream economists, “Audit the Fed” has become an applause line for central banking skeptics like Sen. Rand Paul, who believe the Federal Reserve wields too much power too secretly. In recent years the idea has spread from right-wing politicians to the conservative mainstream, and even critics on the left: A Senate vote on Paul’s “Audit the Fed” legislation in January garnered 53 votes. Sen. Bernie Sanders (I-Vt.) voted for that bill and has pushed for increased transparency at the Fed to the delight of campaign crowds suspicious that the central bank is rigged in favor of Wall Street.

This week, the Fed Up campaign, a 30-month-old group of labor and community organizations pushing for more openness at the Fed, released its own platform for reforming the Fed’s governance structure, including a new idea for an audit—or "annual review"—that could give the idea more mainstream credibility.

The author is Andrew Levin, an economist now at Dartmouth College who has decades of experience at the Fed and a reputation as a thoughtful observer of the institution. While most financial insiders have long dismissed “Audit the Fed” as an unserious political slogan from people unversed in economics, Levin’s proposal has provoked a more serious reckoning with Fed transparency. And increasingly, economists are coming to the same conclusion: More sunlight might do the central bank some good.

“The Fed is overly sensitive about reviewing its policies,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics who has worked at the Fed off-and-on for the past 30 years.

At issue is whether decisions made by the top officials of the Fed should be open to review by the Government Accountability Office (GAO). Technically speaking, the Fed is already audited – it’s subject to the same GAO scrutiny of its operations as any other federal agency. But its most influential decisions, deliberations on monetary policy that attract global attention and can move stock markets dramatically, are conducted in secret by a dozen top Fed officials. Seven of them, known as Fed governors and based in Washington, are nominated by the president and confirmed by the Senate. The remaining five spots are reserved for the presidents of the 12 regional Fed banks on a rotating basis. Collectively known as the Federal Open Market Committee (FOMC), the group generally meets eight times a year, with minutes released three weeks afterwards. Transcripts of those meetings are released on a five-year lag, effectively sealing its deliberations in the short-term.

Because banks ultimately own the regional Fed banks, and have a say in nominating many of their directors, critics say this structure leaves the door open for favoritism to Wall Street, and needs outside scrutiny to ensure it properly balances its dual mandate of stable inflation and full employment. Supporters say the Fed's relative independence is a virtue, and worry its monetary decisions would be worse in the long run if its officials constantly felt Congress breathing down their necks.

The more traditional right-wing “Audit the Fed” legislation would call for a GAO audit of the Fed within 12 months of passage, and thereafter enable any lawmaker or congressional committee to request an audit of the central bank, including the FOMC’s monetary policy decisions, whenever they wanted.

In his new plan, Levin proposes something slightly different: it would require the GAO to conduct a review of all aspects of the Fed, including monetary policy, but make the review annual and determined by GAO staff rather than Congress. “[Paul’s legislation] just seemed like a way to threaten the Fed,” said Levin.

His proposal would also call for seven-year term limits for Fed officials and reform the process that the regional Fed bank presidents are selected. Though he recoiled against terming the GAO review an “audit,” his proposal would give the GAO new powers to examine different aspects of the Fed, as it does with other agencies in the federal government. Instead of called by Congress, it would be annual and determined by agency staff. “From one year to the next, it might focus on some aspects of the Fed's operations. One year, maybe it would focus on monetary policy strategy and communications,” Levin said. “Another year, maybe it wouldn't spend much time on that.” The results would be publicly available.

Narayana Kocherlakota, the former president of the Minneapolis Federal Reserve, expressed support for the idea of regularly scheduled GAO audits of the Fed’s monetary policy. He didn't take a position on earlier audit proposals, but echoed Levin’s concern that allowing lawmakers to request a GAO audit “would be very bad and would lead us down a bad path where essentially Congress was running monetary policy.”

The Federal Reserve declined to comment on Levin’s plan. But Fed Chair Janet Yellen and other Fed officials have aggressively attacked prior proposals to increase oversight over the FOMC’s deliberations. In January, before the Senate voted on Paul’s legislation, Yellen sent a letter to Majority Leader Mitch McConnell and Minority Leader Harry Reid opposing the bill. “These reviews could only serve to create public doubt about the conduct and independence of monetary policy,” she wrote.

“All of that criticism does apply to my proposal,” Levin said after reading those lines from Yellen’s letter. But he argued that such oversight is necessary in a democracy. He added, “After all, the Congress is the Fed’s boss.”

Levin enters this debate with considerable experience. He spent two decades as an economist for the Fed and then was a special adviser to then-Chairman Ben Bernanke and then-Vice Chair Yellen from 2010 to 2012. He also advised many other central banks, including the European Central Bank, the Bank of Canada and the Bank of Japan. Those policy bona fides mean he’s being taken seriously even by people who have dismissed previous “Audit the Fed” proposals.

“Levin knows a lot about the internal workings [of the Fed] that I don’t,” said Jared Bernstein, the former top economist to Vice President Joe Biden and a frequent critic of “Audit the Fed” proposals. “He’s not coming at this from the perspective of some radical protester.”

The underlying question is whether an annual review by GAO—not one triggered by individual lawmakers or committees—will cause the Fed to be influenced by politics in its monetary policy decisions. To some extent, that already happens. The Fed, like every institution, faces criticism from an array of politicians, outside economists, and pundits. “Independence is not as black and white as many people make it seem,” said Kocherlakota.

Finding the right balance between giving the Fed room to make independent policy and holding it accountable is a constant challenge—one that extends beyond “Audit the Fed" proposals. Sanders, for instance, has proposed that FOMC transcripts be released within six months, instead of the current five years.

Few serious Fed watchers, however, have spent much time developing detailed ideas for increased Fed transparency. “I felt like there was a vacuum in the discourse,” Levin explained.

Levin’s reforms are unlikely to become law anytime soon: Lobbying efforts around such a change would be fierce, and groups like the Fed Up campaign are likely to be heavily out-spent by Wall Street banks skeptical of changes intended to reduce their influence over Fed decisions. The Federal Reserve would likely oppose the reforms as well.

By DANNY VINIK

Source

The liberal Center for Popular Democracy has launched a "Fed Up" campaign to urge the central bank’s chairwoman, Janet Yellen, and her team of policymakers against raising interest rates.

Many Fed watchers anticipate Yellen and her team to increase the interest rate, lowered to zero percent following the 2008 economic crisis to spur economic growth as soon as September, citing steady growth.

But the campaign, whose board includes members of the AFL-CIO and Service Employees International Union (SEIU), says that the economy hasn't recovered enough to adopt such a policy.

"The economy remains far too weak to slow it down. We shouldn't mince words — when the Fed raises interest rates, it's doing that to slow the economy down," said Ady Barkan, Fed Up campaign director, on a conference call with reporters.

He called the prospect of the Fed raising interest rates "an insane perspective to take and an insane policy to take at the moment."

The group is sending about 50 activists to the annual Economic Policy Symposium, which includes members of the Federal Reserve, global bankers and top economists. The activists will hold "Teach Ins" that coincide with the annual summit.

Among the planned events is one titled, "Do Black Lives Matter to the Fed?" — a nod to the national movement to highlight policies that disproportionately hurt the African-American community. 

Some progressives criticized Yellen’s testimony in the House last month, when she was asked what Fed officials could do to lower the African-American unemployment rate.

At 9.5 percent, the African-American unemployment rate remains significantly above the 5.3 percent national unemployment rate.

"There really isn’t anything directly that the Federal Reserve can do to affect the structure of unemployment across groups," Yellen answered at last month's hearing. "There’s nothing we can do about any particular group.”

Barkan said that Yellen "was wrong to say there's nothing the Fed can do to help African-Americans."

He argued that Fed officials could help African-Americans and minorities by adopting an agenda that focuses less on pricing bubbles in the markets and more on lowering unemployment, a tactic that would mean keeping interest rates low.

Activists associated with the Black Lives Matter movement have grabbed headlines in recent months for its aggressive questioning tactics to Democratic presidential candidates.

"We hope very much to engage with Federal Reserve officials into these conversations," Barkan said. 

Source: The Hill