Letter to Donald Trump, President of the United States - Federal Reserve Nominees

Letter

President Trump,

We write to express our serious concern that you are not upholding your audacious promise to the American people to "be the greatest jobs producer that God ever created." Even worse, reports indicate that your nominations to key economic policymaking roles may actively undermine the goal of promoting robust jobs growth and wage gains.

Your promise requires you to pursue policies that ensure financial stability and equitable growth for all Americans. We are concerned that your recent appointees to economic and financial oversight positions are committed to the very policies that have fueled inequality and financial instability in the past. As you continue to fill positions at key agencies such as the Federal Reserve, we urge you to consider whether the candidates have a background of promoting widespread job creation and wage growth, or whether they have followed a dangerous approach sought by Wall Street that has harmed working families in the past.

It was disconcerting to receive the May jobs report which demonstrated that job growth is continuing to slow under your leadership. A mere 138,000 jobs were created in May, below the estimated 145,000 to 159,000 jobs per month pace that economists estimate is needed to absorb the flow of new workers into the labor force.[1] Job gains have averaged just 121,000 over the last three months, a decrease from the average monthly increase of 187,000 jobs in 2016.[2] While the unemployment rate ticked down in May, this was a result of many Americans abandoning their search for a job, as evidenced by the fact that the labor force participation rate fell 0.2 percentage points while the employment-to-population ratio also fell 0.2 percentage points. By comparison, despite having his ambitious job-creation legislation blocked by a Republican-led Congress, President Obama left office presiding over 75 straight months of job growth, averaging 199,000 jobs per month during that period.[3] President Obama's successes followed the financial crisis that cost nearly 9 million American jobs and was predominately caused by the deregulation of our financial sector. That is why we are troubled that several of those you've named to financial regulatory positions so far--such as "foreclosure king" Treasury Secretary Steven Mnuchin--actually profited from Americans' suffering during the crisis,[4] and have promised to roll back protections specifically aimed at preventing another economic catastrophe.

You must promptly reverse these troubling trends if you have any intention of keeping your promise to the American people. An opportune moment to do so would be with your nomination for the Federal Reserve's Vice Chair for Supervision, a crucial position that was created by Dodd-Frank to try to prevent another financial crisis. Governor Daniel Tarullo was serving in this role until earlier this year, and he has helped the Fed develop numerous necessary rules to make our banking system safer and address the behavior that led to the 2008 financial crisis. For example, the "Volcker Rule" limits banks from making risky speculative investments with depositors' money, and new capital rules allow the Fed to designate banks that pose systemic risks and require them to maintain a buffer against bad bets and losses that would cause broader damage. In order to protect American workers from another Wall Street-fueled economic collapse, you must appoint someone who will continue Governor Tarullo's work. Longtime Wall Street investment banker Randal Quarles, your reported candidate for the Vice Chair position, is precisely the wrong choice, as he is a vocal opponent of the regulations that are necessary to prevent another economic catastrophe.

Another important factor in whether you are able to fulfill your jobs promise is whether your appointments to the Federal Reserve Board of Governors are deeply committed to the "maximum employment" element of the Fed's "dual mandate." The Federal Reserve is among the most important policymaking institutions with regards to job creation and wage growth. The Federal Reserve is legally mandated under the Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978 to pursue policies that promote "maximum employment." This legislative achievement was accomplished with support from a powerful grassroots movement led by Coretta Scott King, who saw herself as carrying on the economic justice focus of her late husband, civil rights icon Dr. Martin Luther King, Jr. The civil rights movement that the King family led recognized that the widespread economic gains that many Americans experienced after World War II could only be maintained if the entire government, including the Federal Reserve, worked in concert to promote a full employment economy that enhanced labor market conditions for workers of all colors and backgrounds. When the Fed has prioritized its maximum employment mandate, as it did in the 1990s, it has resulted in tremendous growth, reducing longstanding racial disparities in unemployment and wage growth.

In general, the Fed's current leadership has struck a fairer balance between its full employment and price stability missions, ignoring unwarranted and incorrect predictions about rising inflation and avoiding premature rate hikes before the economic recovery can fully reach all communities. The topline unemployment rate has fallen dramatically to 4.3 percent largely as a result of these policies. Unfortunately, wage growth remains sluggish, and an above-average number of workers are unable to access the kinds of jobs, hours, and wages that they want. Many economists and analysts at the Congressional Budget Office continue to estimate that we remain a long way from achieving the Fed's full employment goal. In order to help Americans find employment with rising wages, it will be critical to appoint governors who believe the Fed's maximum employment objective is a paramount element of its mission.

After your election, many Federal Reserve officials pointed to a booming stock market and slightly increased inflation expectations as reasons to begin raising interest rates. That initial economic optimism has begun to shift, however, and May's disappointing jobs numbers are just the latest piece of evidence that the Trump economy will need further assistance to deliver on your sweeping campaign promises. Because your administration has failed to fill many key vacancies, and has been sluggish to articulate a plan for rebuilding our crumbling infrastructure, reforming our tax system, and other initiatives, Federal Reserve officials are no longer counting on the Trump economy to deliver the kind of outcomes they were anticipating in previous months. San Francisco Federal Reserve President John Williams noted this recently, when he said, "I had some hope or expectation that some of the fiscal or other federal policies would become more clear; that has not happened."[5] A well-formulated fiscal stimulus plan might help us achieve the elusive full employment goal and allow the Fed to respond in kind. It is regrettable that policymakers and analysts, including Federal Reserve officials, are losing confidence in your administration's ability to deliver on such a plan.

Considering the weak performance on jobs thus far, it is disturbing that you are reportedly considering prospective Board of Governor nominees who have suggested narrowing or eliminating the Fed's full employment mandate, or undermining the Fed's ability to achieve full employment by requiring that the Fed adopt constraining, rules-based monetary policy. Proposing nominees of this type, exemplified by your second reported nominee Marvin Goodfriend, would be an error and a violation of your commitment to the American people.

On behalf of American working families, we insist that you keep your promise and improve your economic management, including by appointing nominees to the Federal Reserve who will guard against the excesses of our financial sector and demonstrate their commitment to achieving a full employment economy.

Sincerely,

[Members of Congress]