Interest rate hikes will hurt black Americans the most – Quartz

The US Federal Reserve is expected to raise interest rates this week, a move partly supported by the strong recovery in the labor market.

Since April 2020, the unemployment rate has fallen by almost 11 percentage points to 3.8% and is now only slightly higher than it was before the pandemic. But the overall rate masks the situation of black workers: their unemployment rate is 6.6%, double that of white workers.

Rising interest rates slow economy and hiring. When that happens, black workers are the first to be squeezed out, says Howard University economist William Spriggs. “[The Fed] recognize that black unemployment is higher, and their conclusion is ‘it’s a shame,'” Spriggs said. “What happens when hiring stops is that the cost of a job search becomes prohibitive for people who have been marginalized.”

Rising rates will also disproportionately affect black borrowers, who are matter at higher mortgage rates than their white counterparts.

What does the Fed think about jobs?

In 2020, the Fed added the words “broad and inclusive” to its Congressional mandate to create economic conditions for as many Americans to be employed as possible.

Fed officials have noted part of achieving this objective is to take into account the situation of minorities in the labor market, but that the tools of monetary policy are blunt and do not target a group of people. “Eliminating inequality and racial discrimination and racial disparities and that kind of stuff is really something that fiscal policy and other policies — frankly, education policies and that kind of stuff — are more about. effective in concentrating Fed chair Jerome Powell said in September. “We’ve identified the part we can do, and we’ll do that part.”

But some economists say that if Fed officials considered the effects of racism in hiring, they would understand that what black workers need is not more education, but a tighter labor market, a said Spriggs. Research has shown that employers are less prone to discrimination when it is difficult to find workers. “They’re still in this naïve world where there’s no friction in the labor market,” Spriggs said of the Fed. “Anyone can find a job who wants to find a job.”

He and others argue that the Fed should hold rates at current levels until more black workers can find jobs. For now, however, the Fed is more concerned with the other part of its mandate: inflation.

“We need to have price stability,” Powell told a Senate committee on March 3. “We don’t do that. And we are very motivated to do so.

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