How the Fed Can Drive Inclusive Economic Growth
December 12, 2017
By Katy Milani
Why This Matters is a new series from Roosevelt staff connecting our individual work—from papers to reports and everything in between—to our broader vision of creating a better, more equitable economic and political system. This series will give readers the top takeaways from our latest writing and thinking, with a focus on why they matter as we redefine the rules that guide our social and economic realities.
The Great Recession may be 10 years behind us, but many Americans have not shared in the dominant narrative that our economy has recovered post-recession. Despite record corporate profits and high stock prices, Americans across the country are still struggling to regain economic stability, particularly those who lost their jobs or homes during the financial crisis. A new paper from my colleagues Mike Konczal and J.W. Mason elevates the role the Federal Reserve (the Fed) plays in shaping the character of the economy and proposes six bold policy approaches for building a stronger economy. Because it is a key planner in advancing and protecting inclusive growth, it is imperative that the Fed embrace an expanded role.
The consequences of the economic crash are real, pervasive, and continue to reverberate throughout our economy in disparate and unequal ways. By 2013, for example, White families largely reclaimed financial stability, but average earnings for Black and Latino households have yet to bounce back from the declines since 2007. A healthy economy should work for all of us. But this data point shows it only works for some, which runs counter to the popular notion that we’ve recovered.
The Fed helps steer our economy in a healthy direction, away from dangerous bubbles and out of downturns. And when—not if—the next economic crash happens, the Fed will be tasked, like it was in the 2008-2009 financial crisis, to navigate the country back to economic health. However, there’s a serious danger that the tools the Fed used to navigate the economy out of the last crisis will not be enough.
The Great Recession forced the Federal Reserve to think more broadly about how it can address economic declines. The agency should consider a variety of tools to weather crises and manage the economy in ways that can lift up those that have been left behind. The reality of the recovery—where some Americans bounced back, but many did not—is important to keep front and center, particularly as the Federal Reserve assumes new leadership under the soon-to-be-confirmed chairman, Jerome Powell. Even under new leadership, the Fed must put shared economic prosperity at the center of its policy priorities.
Members of the Senate will vote on Powell’s confirmation in the upcoming weeks. Curbing unequal growth post-recession and beyond should be at the top of the new chair’s mind. Armed with an expanded, innovative set of tools and targets to drive true and inclusive growth, the Federal Reserve can choose a new way to manage our financial system and inclusive economic outcomes.