Liberals helped install Janet Yellen as the first Democrat to lead the Federal Reserve in nearly three decades. But now, halfway through her tenure, they are turning into some of the US central bank's sharpest critics.
Yellen won the backing of liberals during her nomination three years ago to one of the most powerful positions in the global economy. They admired her early warnings of the financial crisis and were heartened by her staunch support of central-bank efforts to reduce unemployment.
But now, as the Fed contemplates raising interest rates next Thursday (NZ time), there is concern among liberal policy experts and economists, who worry about upsetting the fragile US recovery.
Democratic lawmakers have pushed back against the Fed's plans to raise rates even though unemployment among people of colour remains high and wage growth is still relatively weak.
In a letter to Yellen, more than 100 members of Congress and nearly a dozen senators questioned why there were so many bankers -- and so few women and racial minorities -- in the Fed's top ranks.
As Yellen and her colleagues gathered at Jackson Hole for their annual economic conference last month in the shadow of the majestic Grand Tetons, they were greeted by a towering banner reading "Full Employment 4 Black + Brown" and demonstrators chanting, "Whose Fed? The people's Fed!"
"There is still a lot of hope that Janet Yellen is more ally than adversary," said Josh Bivens, research and policy director at the Economic Policy Institute, a left-leaning think tank that was involved in the protest. "But we also realise that the Fed has a lot of crosscutting political pressures."
In a speech last month, Yellen suggested the Fed was moving closer to raising rates again, despite liberal objections. She argued that the job market was improving, even though broader economic growth has been disappointing. And she said the central bank is nearing its goals of maximising employment and keeping prices stable. "I believe the case for an increase in the federal funds rate has strengthened in recent months," Yellen said.
That, combined with thinking aloud from other Fed board members during the past 10 days triggered the "Bigger than Brexit" sell-off on Wall Street.
The Fed fiercely defends its decisions from political interference. Setting interest rates is the key lever the central bank uses to steer the economy: raising its benchmark rate generally encourages savings rather than spending, slowing down an overheating economy. Low rates make borrowing money more attractive, boosting growth.
The economy has recovered for much of white America. But for black and Latino workers, it hasn't.
During the long recovery from the Great Recession, the central bank kept its benchmark interest rate at virtually zero and pumped trillions of dollars into the economy in the hope of fostering faster growth. Republicans lambasted the effort as creating potentially dangerous imbalances in the financial markets. Democrats backed the moves as essential to ensuring the nation did not slip back into recession.
But things have changed since late last year, when the Fed, under Yellen's leadership, raised rates for the first time in nearly a decade. Liberal economists -- including some within the central bank -- worried that the move was premature. Democrats who had hoped Yellen would keep the easy money flowing were worried.
So activists at the Centre for Popular Democracy, a coalition of liberal groups, organised workers to protest in Washington and at the central bank's regional branches across the country, then contacted lawmakers and liberal economists to amplify their message.
Seeded with money from Silicon Valley, the two-year-old organisation has turned the effort, known as Fed Up, into a powerful vehicle for the liberal critique of the central bank.
Nobel Prize-winning economist Joseph Stiglitz, one of Yellen's friends and boosters, joined the group's demonstration at Jackson Hole last year.
The Fed should be using its economic expertise to highlight the long-term devastating impacts of failing to provide the opportunity for the skills needed for the economy of the future.
Fed Up is also taking aim at the lack of diversity in the top rungs of the central bank and is pushing to remove bankers from the Fed's boards of directors -- a proposal backed by Democratic presidential nominee Hillary Clinton.
Activists have urged the central bank not to raise rates until the unemployment rate falls to 4 per cent for all races.
During Yellen's appearances on Capitol Hill, Fed Up members have donned green shirts with the slogan "Whose Recovery?" and filled the seats behind her. Democratic lawmakers have echoed their dissatisfaction from the dais.
"The Fed should be using its economic expertise to highlight the long-term devastating impacts of failing to provide the opportunity for the skills needed for the economy of the future," said Democratic Senator Jeff Merkley. "But I don't hear the Fed talking about that."
The Fed has come under frequent fire from both sides of the aisle since its founding in 1913. Most recently, Republicans and Democrats have excoriated it for what was seen as lax regulation of banks before the 2008 financial crisis and its subsequent bailout of those same institutions. Lawmakers have repeatedly called for greater transparency at what has historically been a secretive central bank.
But the new unrest among liberals is striking because it was progressive lawmakers who helped clear the way for Yellen's nomination to lead the central bank. Merkley, in particular, was instrumental in scuttling a rival bid for the job from former treasury secretary Lawrence Summers, who was President Obama's favoured candidate. Liberal Democrats opposed Summers' role in deregulating large banks during the 1990s and his controversial comments about women in science that contributed to his resignation as president of Harvard University.
Yellen, on the other hand, is the first woman to lead the Fed in its 100-year history. She was among the first officials at the central bank to warn that a bust in the housing market could cascade through the rest of the economy. And she had devoted her academic career to studying how the job market works.
If you decide that we are at maximum employment now and you intentionally slow down the economy, you will be leaving us behind, pulling up the ladder after you've climbed it.
Yellen's first major speech as Fed leader did not disappoint. After touring job training programmes in Chicago, she told the personal stories of workers who struggled to find employment and earn a good wage -- an unorthodox move for an institution that typically deals in abstract statistics. Another speech on the economic consequences of inequality also fell outside the Fed's traditional comfort zone.
"The new Federal Reserve Chair Janet Yellen is different. She's a progressive who cares about jobs," touts a slide from a Fed Up video that superimposes Yellen's face on Rosie the Riveter.
Yellen still has broad personal support among Democrats, though activists say they intend to hold her -- and the rest of the central bank -- accountable for sustaining the recovery. Even the most vocal critics are careful to level their attacks at the institution and not directly at Yellen.
In a statement, Merkley said Yellen was doing "an excellent job steering the Federal Reserve through uncertain times." Democrats also acknowledge that Yellen must build consensus among the 16 central-bank officials who are eligible to vote on the direction of interest rates.
The pressure comes as Yellen faces another crossroads. The Fed is contemplating raising rates again, amid resilience in the job market and fading fears of recession. Some analysts say the central bank could hike rates again as soon as next week -- and progressives are urging the Fed to rethink.
At a packed meeting inside a stuffy conference room at Jackson Hole, 10 top Fed officials sat down with activists to talk about the economy. The central bank has already demonstrated caution in raising rates, they argued. Moving gradually now could also prevent the need to hike rates abruptly in the future. "Everybody on this panel is painfully aware of what the costs of the last recession were and wants to avoid a future recession," said Eric Rosengren, president of the Boston Fed.
The crowd appeared unconvinced. "The economy has recovered for much of white America. But for black and Latino workers, it hasn't," said Fed Up member Rod Adams, a neighbourhood organiser from Minneapolis. "If you decide that we are at maximum employment now and you intentionally slow down the economy, you will be leaving us behind, pulling up the ladder after you've climbed it."
• Born: 1946, Brooklyn
• Education: Bachelor's degree in economics, Brown University; doctorate in economics, Yale University
• Career: Economics professor, University of California, Berkeley, 1980-2006. Member of the Federal Reserve Board of Governors, 1994-97. CEO of the Federal Reserve Bank of San Francisco, 2004-10. Vice chair of the Federal Reserve Board, 2010-14. Chair, 2014-present
• Family: Married to Nobel-winning economist and University of California professor emeritus George Akerlof. Their son, Robert, is an economics professor at the University of Warwick in England.
• Where she sits on the Forbes List:
- #3 Power Women (2016)
- #4 in 2015
- #7 Powerful People (2015)
• What the Fed's moves mean to New Zealand:
Once US interest rates start rising, better returns there mean investors will be encouraged to move out of riskier bonds, shares and currencies such as those of New Zealand.