Fed’s rate hikes threaten its goal of narrowing racial gaps

WASHINGTON — America’s hiring boom of the past year has narrowed racial disparities in unemployment. The Fed’s rate hikes will mean higher borrowing rates that could hobble the job market and undercut a goal the Fed unveiled two years ago: To keep rates ultra-low for as long as possible, to help less advantaged workers, who often don’t benefit much from job growth until late in an economic expansion. In August 2020, the Fed redefined its goal of maximum employment as being “broad-based and inclusive.” For the first time, it would look beyond the overall unemployment rate and also consider jobless rates for Black and Hispanic workers in setting interest rates. Algernon Austin, who leads the race and economic justice program at the Center for Economic and Policy Research, suggested that while the central bank deserves credit for pursuing an inclusive recovery, “what the Fed does is not going to solve the problem.” Likewise, Powell said last year that he believed Congress and other institutions would have to pursue policies, in education and other areas, to fully eliminate racial inequalities in jobs and incomes. With that policy as a “cushion,” Darrity said, “the Fed could tackle inflation without fear of extreme adverse social consequences.” In a speech last February, Powell acknowledged the limits of the Fed’s powers.