Ahead of likely Fed interest rate hike, low-wage workers worry

Slight increase in borrowing costs could stymie job growth and slow down the economic recovery

Aracelly Cantos, center, and other low-wage workers with Fed Up protest an anticipated Federal Reserve interest rate hike in New York City.
Fed Up

For years, Aracelly Cantos in the New York City borough of Queens has waited for the economic recovery to scoop her up.

A university graduate who came to the United States from Ecuador four years ago, she earns $8.75 an hour working two jobs for a single employer who she said doesn’t pay her overtime or give her benefits, despite her putting in 60 hours every week.

To make ends meet, Cantos, 27, has taken on two roommates to help with rent for her apartment. She now shares a bedroom with her ailing mother.

“I don’t have nothing in my pocket, and I don’t have nothing in bank,” said Cantos, who asked her employer for a raise and continues looking for another job. She thinks the labor market works against her and will only get worse.

She might be right. Federal Reserve policymakers are slated to announce their decision on interest rates on Wednesday. Chairwoman Janet Yellen has signaled that the Fed will raise rates for the first time in nine years, citing the low unemployment rate and the 13 million jobs that have been created since 2010 and the Great Recession.

But many low-wage workers like Cantos are concerned that the move will slow down an economic rebound that has yet to truly benefit them.

‘Terrible idea’

When the Fed raises the benchmark federal funds rate, as Wall Street expects, the target interest rate at which banks lend to each other will go up a quarter of a percentage point.

The small increase, after almost seven years of near-zero rates, could set off a chain reaction through the economy. As borrowing costs go up, consumers buy fewer goods and services, which means firms have less incentive to expand operations and could need to cut back on employees.

Low-skilled workers fear that these negative effects could put them in an even worse position to negotiate raises.

To voice their opposition, many have joined forces with other concerned citizens to form Fed Up, a campaign pressuring Fed officials to prioritize job growth by keeping interest rates low. The Center for Popular Democracy and Action for the Common Good, which sponsors the project, said it’s a “terrible idea” to jeopardize giving the economy “a fair chance to recover.”

Ben Wolcott, a community organizer with Fed Up, said, “I don’t think Janet Yellen and the other people at the Federal Reserve really know what it’s like to share a room with your mom, to have to have roommates who are two total strangers.”

He added, “They look at numbers all day long, but they don’t actually know the people behind them.”

Members of the group followed central bankers in August to their annual retreat in Jackson Hole, Wyoming, where they discussed stock market turmoil. And at the beginning of this month, while Yellen was briefing lawmakers on Capitol Hill, Fed Up campaigners held a briefing to warn against planned monetary policy action.

At that event, Rep. Brad Sherman, D-Calif., said officials should be more motivated to help boost stagnant salaries. But, he made clear, that will not happen without “a specific goal that we want unemployment down and wages up.”

Sherman is among 13 co-sponsors of a bill by John Conyers, D-Mich., seeking to prohibit the Fed from a rate hike until unemployment sinks below 4 percent, from the present 5 percent, its lowest level since 2008.

Advocates of full employment above all else don’t agree with economists who say the Fed needs to worry about preventing an increase in prices by lightly putting the brakes on economic growth. The core consumer price index — used to measure costs for basic goods, excluding food and energy — is right at the 2 percent target.

Meanwhile, during the last year, real average hourly earnings rose just 1.8 percent. Although that figure is said to be picking up, many workers hope a meaningful increase will put them well ahead of inflation.

Yellen has said her aim is to slowly increase the interest rate to prevent inflation rather than have a jump in inflation force “an abrupt tightening” of monetary policy, which she thinks could “risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”

Although the Fed has declared the economy strong enough to warrant an interest rate hike, Cantos hopes the economics will work for everyone, including vulnerable people like her.

“When the Federal Reserve says the economy is going up, that the economy is great, that the economy is good, it’s a big, big lie,” she said. “They have to think about the economy for everybody.”

The Federal Reserve building in Washington, D.C. Economists expect the Federal Open Market Committee to raise interest rates for the first time since 2006.
Andrew Harrer/Bloomberg/Getty Images

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