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center for economic and policy research
Fed 'Waited Too Long' But Finally Cut Interest Rates
"The Fed must continue to cut rates aggressively in the coming months to prevent a slowing labor market and provide much-needed relief to people who are bearing the brunt of high interest rates," said one economist.
Sep 18, 2024
Economists and working-class people across the United States on Wednesday welcomed the Federal Reserve's decision to cut its benchmark interest rate by half a percentage point as an incredibly overdue and necessary move.
In line with signals from Fed Chair Jerome Powell's speech last month, the Federal Open Market Committee lowered the federal funds rate by half a percentage point to 4.74-5%, the first cut "since March 2020 when Covid-19 was hammering the economy," as The Associated Pressnoted. Additional cuts are expected over the next two years.
"Finally," wrote Kenny Stancil, a senior researcher at the Revolving Door Project and former Common Dreams staff writer, in a blog post. "The Fed should have provided interest rate relief months ago. While this overdue move is welcome, we must reiterate that Powell's deferral of interest rate cuts has hurt the clean energy transition and inflicted other economic harms."
Lawmakers and experts, including Groundwork Collaborative chief economist Rakeen Mabud, have long called for rate cuts and highlighted the harms of refusing to pursue them.
"Today's rate cut is a step in the right direction, but only a first step," said Mabud in a statement Wednesday. "The Fed must continue to cut rates aggressively in the coming months to prevent a slowing labor market and provide much-needed relief to people who are bearing the brunt of high interest rates."
Center for Economic and Policy Research senior economist Dean Baker also welcomed that the Fed is changing course, saying: "This is a belated recognition that the battle against inflation has been won. Contrary to the predictions of almost all economists, including those at the Fed, this victory was won without a major uptick in unemployment."
"Unfortunately, the Fed waited too long to make this turn," Baker continued. "As a result, the unemployment rate has drifted higher. While there is little basis for concerns about a recession, if the unemployment rate is 0.5 percentage points higher than it needs to be, that translates into 800,000 people out of work who want jobs."
"It is good that the Fed has now recognized the weakening of the labor market and responded with an aggressive cut," he added. "Given there is almost no risk of rekindling inflation, the greater boost to the labor market is largely costless. Also, it will help to spur the housing market where millions of people have put off selling homes because of high mortgage rates."
Liz Zelnick of Accountable.US similarly stressed the benefits, saying that "while it should have come sooner, the Fed's interest rate cut will ease some burden for many Americans that found it simply too expensive to buy new homes or cars."
"Fortunately, the Fed's aggressive interest rate strategy defied odds and did not spur a recession as the economy continues to grow hundreds of thousands of jobs every month while wages are rising," she said. "Persistently high interest rates were never going to get at the root of the corporate price gouging epidemic that has needlessly kept prices high on many necessities—a problem that is on Congress to fix."
Some members of Congress who have been pushing for rate cuts also applauded the belated action—including Sen. Martin Heinrich (D-N.M.), chair of the Joint Economic Committee.
"Let's be clear: Today's decision is a big win for families across the country," he declared. "Lower rates mean that more families will be able to buy a home or a car without high interest payments looming over them, and their credit card bills will go down."
"But there is still work to be done," he said. "I will continue to work with my colleagues to fight for policies that raise wages, strengthen our economy, create new jobs, and lower prices for families in New Mexico and across the country."
Congressman Brendan Boyle (D-Pa.), ranking member of the House Budget Committee, has also criticized the central bank's refusal to cut rates and praised the Wednesday reversal.
"We've made significant progress on inflation, but House Democrats know there is more to be done to bring down the cost of everyday goods and take on corporate price gouging," Boyle said, nodding to the November election in which former Republican President Donald Trump is facing Democratic Vice President Kamala Harris.
"While House Republicans continue trying to inflict higher costs and higher taxes on the middle class with Trump's Project 2025 agenda," he added, "House Democrats will never stop fighting to deliver an economy that works for working families."
Harris similarly applauded the "welcome news for Americans who have borne the brunt of high prices" while acknowledging that more must be done and vowing that "my focus is on the work ahead to keep bringing prices down."
"I know prices are still too high for many middle-class and working families, and my top priority as president will be to lower the costs of everyday needs like healthcare, housing, and groceries. That is why I am proposing plans to cut taxes for more than 100 million working and middle-class Americans, pass the first-ever federal ban on corporate price gouging on food and groceries, and make housing more affordable by building 3 million new homes and giving more Americans down payment assistance," she said.
The Democrat also took aim at Trump's intentions, warning that "while proposing more tax cuts for billionaires and big corporations, his plan would increase costs on families by nearly $4,000 a year by slapping a Trump Tax on goods families rely on, like gas, food, and clothing. He wants to repeal the law I cast the tie-breaking vote to pass that caps the costs of prescription drugs for seniors, including insulin at $35. He would end the Affordable Care Act and erase the progress we have made to lower premiums for millions of Americans by hundreds of dollars a year."
"Sixteen Nobel Prize-winning economists say his plan would increase inflation, and a Moody's report found it would cause a recession by the middle of next year," she noted. "This election is about whether we are going to finally build an opportunity economy that gives every American a shot not just to get by, but to get ahead. As president, that will be my priority every day."
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Report Details Best Path Forward to End Political Crisis in Venezuela
The Center for Economic and Policy Research warned the U.S. against piling on economic sanctions that have "taken the lives of tens of thousands of Venezuelans" and "helped create the current crisis."
Aug 14, 2024
A report released Tuesday by a U.S.-based think tank calls on the Biden administration to support a regional effort to reach a negotiated solution to Venezuela's dangerous political crisis as the country's president and right-wing opposition continue to declare themselves the rightful winners of last month's election.
The new analysis by the Center for Economic and Policy Research (CEPR) argues that Brazil, Mexico, and Colombia's attempt at mediation and dialogue—not additional economy-crushing sanctions by the U.S. and other Western nations—represents "the best opportunity for bringing about a peaceful resolution of the current crisis."
U.S. sanctions, the report notes, "have taken the lives of tens of thousands of Venezuelans and fueled the migration of millions more." Other "failed policies" include "military coup attempts, such as those that U.S. administrations supported in 2002 and 2019," the report adds.
"Recognizing a parallel government, or imposing more sanctions on Venezuela, will only make the crisis much more difficult to resolve; in fact, these policies helped create the current crisis," CEPR said.
The report comes less than two weeks after the U.S. State Department formally recognized Edmundo González, Venezuela's opposition candidate, as the winner of last month's presidential election over incumbent President Nicolás Maduro, who says he prevailed in the contest that has attracted close scrutiny and calls for transparency from the international community and independent watchdogs.
A four-member team of United Nations experts that was in Venezuela's capital for more than a month ahead of the presidential election—at the invitation of Venezuela's Consejo Nacional Electoral (CNE)—issued an interim report Tuesday that criticizes the CNE's management of the July 28 contest, arguing that it "fell short of the basic transparency and integrity measures that are essential to holding credible elections."
While turnout was significantly higher than in 2018 and the election "took place in a largely peaceful environment and was logistically well-organized," the U.N. experts said, the CNE's "announcement of an election outcome without the publication of its details or the release of tabulated results to candidates has no precedent in contemporary democratic elections."
"This had a negative impact on confidence in the outcome announced by the CNE among a large part of the Venezuelan electorate," the experts added. The CNE said Maduro won the election with just under 52% of the vote.
"The new presidential term in Venezuela does not begin until January 2025, providing more than four months for all sides to reach a negotiated agreement."
CEPR's assessment of the contest and its aftermath resembled that of the U.N. experts. The watchdog group criticized the CNE's failure to "release a breakdown of the results at the voting table (mesa de votación) level" and urged it to make the information public "as promptly as possible."
"The government has rejected the authenticity of the tally sheets published by the opposition," CEPR's report notes. "But the case it has made so far has been unconvincing, presenting about three dozen purported tally sheets (out of about 25,000) where there are allegedly missing signatures and similar issues which are common in most electoral processes."
CEPR also criticized the opposition for backing "what amounts to a military coup," threatening a repeat of "the errors that many opposition politicians made in 2019 when they called on the armed forces to turn against the government and support the installation in the presidency of Juan Guaído, a member of the National Assembly who was never elected president."
"Extra-constitutional efforts of this sort should be vigorously opposed internationally," CEPR said. "Likewise, the government needs to ensure that security forces adhere to international human rights standards when responding to protests and disturbances; they should also refrain from carrying out arbitrary detentions."
Amid calls to release detailed election results, Maduro has taken his case to Venezuela's Supreme Court, which is conducting a review of the election.
While the Biden administration is reportedly considering fresh sanctions against Venezuela, Reutersnoted Tuesday that U.S. officials have "so far held off on new punitive measures."
"The presidents of Brazil, Mexico, and Colombia are coordinating action while calling for full access to voting records, while a coalition including the U.S., Canada, Panama, and others are holding separate talks among each other and with Venezuela's opposition," Reuters added.
CEPR stressed in its report that "the new presidential term in Venezuela does not begin until January 2025, providing more than four months for all sides to reach a negotiated agreement and allow for diplomatic efforts to take shape."
"In that regard, it seems like the most promising efforts are led by the group formed by Brazil, Mexico, and Colombia, who are 'holding conversations with both sides,'" CEPR added, citing Associated Pressreporting. "The likely alternative is not promising: If these governments were to be sidelined, the United States would likely play a bigger role together with right-wing regional governments who are allied with Washington. Given the history described above, it is highly unlikely that this would result in a positive outcome for Venezuela."
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Analysis Warns Student Debt Crisis 'Would Likely Worsen' If Trump Elected
The Project 2025 Mandate for Leadership declares that "there should be no loan forgiveness."
May 15, 2024
From attacks on abortion rights to the fossil fuel-driven climate emergency, many problems concerning Americans are expected to worsen if former U.S. President Donald Trump is elected in November—and the list included the student debt crisis, according to an analysis published Wednesday.
Algernon Austin, the director for race and economic justice at the Center for Economic and Policy Research, and CEPR domestic program intern Alex Richwine determined that the student debt crisis "would likely worsen" if the Republican returns to the White House after examining the Trump and Biden administrations' track records and a conservative coalition's sweeping policy document.
"Collectively, students owed $1.6 trillion in federal student loans at the end of 2023. However, that total is slightly lower than it was two years prior, thanks to some proactive actions from the Biden administration," the CEPR report begins. "The administration has pursued a variety of policies and initiatives to forgive student debt and ease the process of repayment. These policies have halted a decadeslong increase in outstanding student debt, but that increase would likely return under a second Trump administration."
President Joe Biden notably tried to enact a much broader student debt cancellation policy—which would have wiped out up to $20,000 per borrower—but that plan was struck down last summer by the right-wing U.S. Supreme Court, which includes three Trump appointees. The Democrat last month announced a new plan to provide relief to millions.
"Early indications and past experience tell us a second Trump administration would allow this crisis to worsen."
Despite recent relief efforts, "the crisis of student debt is restraining many hardworking Americans from economic prosperity," Austin said in a statement. "Early indications and past experience tell us a second Trump administration would allow this crisis to worsen."
Citing various examples, the report states that "the Trump administration demonstrated no interest in easing the burden on student borrowers, and, in fact, supported some policies that harmed student borrowers."
"Former Secretary of Education Betsy DeVos made it more difficult for borrowers to pursue forgiveness through the borrower defense to repayment program. In May 2020, Trump vetoed a bipartisan bill to undo that move by DeVos," notes the analysis. "DeVos was also sued by student borrowers in 2020 for illegally garnishing the wages of borrowers despite a pandemic pause on the practice."
Going forward, Trump also may be influenced by the Heritage Foundation-led 2025 Presidential Transition Project and its Mandate for Leadership: The Conservative Promise. While the think tank has for decades periodically released its policy wishlist for the next Republican president, this cycle it's going much further, partnering with politically aligned groups for the more ambitious project.
In addition to crafting detailed policy recommendations, Project 2025 is seeking "properly vetted and trained personnel to implement them." One expert has called it "an authoritarian roadmap to dismantling a thriving, inclusive democracy for all."
Austin and Richwine issued a more focused warning about the project and its policy document, writing:
The authors of the Mandate want little to no role for the government in managing student debt portfolios. Ultimately, they want the private sector to take over completely, but the more feasible proposal is shifting the federal government's role from direct lender back to guarantor. As mentioned above, while this approach is profitable to lenders, it is more costly to the federal government. The Mandate's authors wish to "completely reverse the student loan federalization" by gradually eliminating the Office of Federal Student Aid (FSA). Distribution of federal loans would then be a private operation, with a new public corporation acting as the monitor.
The Mandate authors wish to phase out all existing income-driven repayment (IDR) plans and replace them with an IDR that would have more narrow eligibility rules. Ideally, the goal is that "there should be no loan forgiveness." This would remove the possibility of student loan forgiveness for countless individuals who make consistent payments but have no hope of fully paying off the loan.
The section on education reform also features a recommendation that colleges have "skin in the game," to enforce accountability for the indebtedness of their students. Essentially, a college would be incentivized to keep costs low if it were required to pay penalties when its students default on student loans.
"This idea once had bipartisan support on the Hill, but many have come to realize that this would likely have adverse effects on institutions that largely admit students from underserved populations," Austin and Richwine wrote, pointing to community colleges and historically Black colleges and universities. "These schools might reduce their admission of low-income students to avoid penalties, an outcome that would sacrifice educational equity."
"Alternatively, universities that expect to be paying these penalties—because they continue to prioritize enrolling low-income and minority populations—would increase tuition to account for these expected costs," they continued. "Neither of these options bodes well for the sustainability of accessible higher education. Furthermore, private colleges already invest in their students by funding financial aid programs from their own resources."
With less than six months until the election, the pair concluded that on student debt, "the Biden administration has recognized the exigency of this crisis in a way the Trump administration never did. The Mandate for Leadership suggests that a second Trump administration would not pursue student debt forgiveness, allowing the crisis to worsen at the expense of so many struggling Americans."
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