Raising the Fed rate will not be a magic bullet

Lift regulatory burden instead

The Federal Reserve’s decision to raise interest rates Wednesday ended many months of speculation from journalists and pundits, who had devoted endless attention to the decision.

Real job creators look on dispassionately. It’s true that the price of credit, as indicated by the interest rate, has an impact on the economy. Yet it is nowhere close to the primary driver of economic expansion, which is determined to a far greater extent by consumer sentiment.

When I was CEO of the electronics corporation Best Buy, what the Fed was doing had a negligible impact on our business decisions. These were made, rather, based on the actions of consumers, to which we had a front-row seat as a major retailer.

And, at the moment, consumers are in far worse shape than the top line unemployment rate and record stock market levels suggest.

The working-age labor force participation rate, which captures workers who have dropped out of the economy altogether, is at a generational low.

The number of full-time employees only just returned to its pre-recession peak this summer — nearly eight years later — despite the working-age population growing by 8 million.

Median wages, on the other hand, still have not come back. As the Census reported recently, wage growth was flat for the third straight year. And it is still 6.5% below its 2007 level.

A major reason for these consumer headwinds is the regulatory burden placed on American job creators. Overregulation discourages businesses from investing, expanding and hiring, which have historically been the drivers of economic and wage growth.

Note, for instance, that net business formation is still well below historical standards, following years where business “deaths” outpaced “births” for the first time in recorded history.

While regulations are almost always well-intended, they also almost always have unintended consequences.

For instance, the Affordable Care Act’s employer mandate requiring businesses to provide insurance for employees who work 30 hours or more per week has led to an increase in the number of employees working only 29 hours or less. A growing list of high-profile companies have cut hours below 30 per week.

Or take the Dodd-Frank financial regulations, which require banks to hold more cash and place more restrictions on lending.

As a result, only three new banks have opened since its implementation in 2010, down from more than 100 each year, on average, before. This has cut off a valuable source of lending for small businesses, which account for two-thirds of the nation’s jobs.

It’s this dynamic between overregulation and consumer well-being that the nation must address, not wasting time trying to find the Rosetta stone to predict what the Fed is going to do.

Brad Anderson, former CEO and vice chairman of Best Buy, is a member of the Job Creators Network.