CPD IN THE NEWS

Should Federal Reserve officials meet expectations and raise interest rates next week, they will be doing so over the objections of some high-profile experts, including one who used to work for the central bank.

A coalition of economists released a letter Friday urging the Fed to change the criteria it uses to make decisions. Specifically, the group, called "Fed Up," is advocating for a higher inflation rate target than the current 2 percent level. Among its members is former Minnesota Fed President Narayana Kocherlakota.

Read the full article here.

(Interview with Ana Maria Archila at 1:09:10)

Watch the full video here.

The Federal Reserve offered a slightly more upbeat assessment of the economy but provided little insight into when it will raise its benchmark interest rate for the first time in nearly a decade.

Fed officials voted unanimously to keep the target rate at zero for now, after wrapping up their regular two-day policy-setting meeting in Washington on Wednesday afternoon. In a carefully worded statement, the central bank noted that the economy has expanded “moderately.” It pointed to solid job gains and lower unemployment as signs that the labor market has improved, adding that underemployment has also diminished.

Perhaps most important, the Fed characterized the risks to its outlook for the economy as “nearly balanced” — the same description it used after its previous meeting. Some analysts believe that the Fed will move once the risks are weighted more evenly.

U.S. stock markets spiked after the release of the Fed statement but quickly settled back down. Both the blue-chip Dow Jones Industrial Average and the broader Standard & Poor's 500 average were up about half a percentage point in mid-afternoon trading.

Fed Chair Janet Yellen has said several times that she expects the central bank will raise its benchmark federal funds rate before the end of the year, a move that would herald the end of the central bank’s unconventional — and controversial — efforts to resuscitate the American economy.

Many investors and economists believe the moment will come during the Fed’s meeting in September, which would be followed by a news conference allowing Yellen to explain the central bank’s decision more fully. But a vocal minority think the Fed will wait to move in December, the next meeting with a scheduled news conference. A few economists — including two officials within the central bank — believe the Fed should hold off until 2016 to be sure the recovery is solid.

Fed officials have debated how strong of a signal to send as the moment of liftoff nears. But the central bank has repeatedly emphasized that its decision will depend on the evolution of economic data — and so investors should look to the numbers for the green light for action.

A key figure will be the government’s estimate of second quarter economic growth slated for release Thursday. Falling oil prices, a strong dollar and a sharp slowdown in the growth of consumer spending helped drive an unexpected contraction in the economy over the winter. Fed officials are hoping that second quarter GDP growth will prove the dip was merely temporary.

A stronger reading would also align with the pickup in hiring over the past two months. Unemployment is nearing its lowest sustainable level, making some officials antsy for the Fed to start tapping the brakes on the economy.

But others have argued that exceptionally low inflation means the Fed has plenty of time to act. Price growth remains well below the central bank’s 2 percent target, and officials have said they want to be “reasonably confident” it is moving up before tightening policy. In June, the central bank had stated that energy prices “appear to have stabilized.” But on Wednesday, it cited further declines in energy prices, along with the falling price of imports, as reasons inflation has remained low.

The Fed slashed its target interest rate to zero when the country was in the grips of the financial crisis in 2008, and it has stayed there ever since. In addition, it pumped trillions of dollars into the economy in an effort to lower longer-term rates and spur borrowing among consumers and investment among businesses. Unwinding those policies will likely take years.

Meanwhile, the Fed is facing renewed scrutiny in Congress. The House Financial Services committee on Wednesday passed a bill that would require the central bank to explain when it deviates from certain monetary policy models, disclose more information on salaries and allow for audits of the Fed's decision-making process. Another bill sponsored by Texas Republican Rep. Kevin Brady would create a commission to examine the Fed, which recently celebrated its centennial.

“The Fed is trying to do too much,” Brady said in an interview. “It can be the right tool, but not for everything and everybody.”

The central bank is also facing pressure from the other end of the political spectrum. A coalition of community activists and labor groups is urging the Fed to leave its target rate unchanged amid elevated unemployment rates among minorities.

“Until we reach genuine full employment, there is no reason for the Fed to contemplate putting people out of work and slowing down our economy via interest rate hikes,” the Fed Up campaign said in a statement.

Source: The Washington Post

Chicagoist - May 28, 2014, by Aaron Cynic - Supporters of raising the minimum wage introduced an ordinance at a City Council meeting today that calls for an increase to $15 an hour. The proposal, backed by several Aldermen including John Arena, Joe Moreno and Roderick Sawyer, comes on the heels of a report released that shows a raise in the wage would benefit both workers and the City’s economy.

According to the plan, companies making more than $50 million a year would be required to first raise their minimum wage to $12.50 an hour within 90 days and then to $15 within a year. Smaller businesses would have to raise their wages at a more graduated rate, with a total of four years to get to $15. From there, the minimum wage in Chicago would rise with the rate of inflation.

“Study after study demonstrates that when you put money into the pockets of consumers, they spend it," Alderman Ricardo Munoz, who also backs the measure, told Reuters. "They don't hoard it in their mattresses.”

The recent report from the Center for Popular Democracy says a minimum wage increase would yield workers about $1.1 billion collectively, with an average annual income increase of $2,620 per individual. This would generate $74 million in personal income taxes to the state and yield $616 million in new economic activity.

At a press conference at City Hall, Tanika Smith, a fast food worker, said her current pay of $8.75 an hour, just 50 cents more than the minimum wage in Illinois, simply isn’t enough. “My car note is $500 a month, my rent is about $500, food is going up, lights are going up,” said Smith.

Raising the minimum wage is becoming a key issue with politicians statewide. Last week, Mayor Rahm Emanuel gave a panel of business, labor and civic leaders 45 days to draft a plan to raise the wage in Chicago. Gov. Pat Quinn has championed raising the state wage to $10.65 an hour, and Illinois House Speaker Michael Madigan is pushing for a referendum on the November ballot to ask voters if the wage should be raised to $10 an hour.

Both the Illinois Chamber of Commerce and Illinois Retail Merchant’s Association oppose an increase to the minimum wage. “We think it puts us at a competitive disadvantage,” Chamber CEO Theresa Mintle told Reuters. The Retailers Association has said that raising the wage would force businesses to cut both jobs and hours.

Ald. Moreno, however, disagrees.

“It’s gonna hurt the people at the top possibly. It’s not gonna hurt business. It never has. Raising the minimum wage in the United States has never, ever hurt the broader economy...Our economy has been splintered with those at the top having way more. The middle class is shrinking. We want the middle class to grow.”

Source