The Federal Reserve’s policy-setting meeting in late September brought the expected news on interest rates: no change for now, but a possible increase before 2024 as the Fed feels its way toward the vaunted “soft landing” that cools inflation without driving the economy into recession. But before making any further decisions on rates, the Fed should consider who will experience this hypothetical soft landing and who will suffer through a crash landing.
Over the summer, I raised this very question along with other civil rights advocates when we met with Fed Chairman Jerome Powell. Just two weeks later, they raised interest rates by another quarter percent.
In April, the unemployment rate for Black Americans—which consistently runs higher than for whites or the overall workforce—hit an all-time low of 4.7 percent. Right now, as general unemployment has inched back up to 3.4 percent, Black unemployment is nearly two percentage points higher at 5.3 percent. If rising interest rates push overall unemployment up past 4 percent, as the Fed has projected, Black unemployment will reach recession levels quickly.
Higher interest rates also push homeownership farther out of reach for millions of working-class Americans, particularly Americans from the Black, Latinx, and certain Asian and Pacific Islander communities. Because homeownership remains the primary way American families build wealth, this disadvantage perpetuates our nation’s yawning racial wealth gap. The white homeownership rate sits at about 75 percent, and has not dropped below 70 percent in nearly three decades. Compare that to 50 percent or less for Latinx Americans and consistently well under 50 percent for Black Americans.
Nationally, home prices are actually slightly higher than they were a year ago. Combined with high mortgage rates, that leaves very few working families able to buy a home.
The Fed’s preferred inflation-fighting tool, ramping up interest rates, is designed to cool wage growth and drive up unemployment—as they say, that’s not a bug, it’s a feature. And it will, without doubt, disproportionately hurt communities of color.
And it might not actually work to get inflation down to where the Fed wants it. That’s because housing costs are a major driver of inflation, as the Bureau of Labor Statistics acknowledged in an August press release.
Rising interest won’t bring down housing costs. When people cut back spending, they cut back on non-essential items first—they postpone that vacation, new car, or new TV. But they can’t do without housing, and because we aren’t building enough housing, particularly at the affordable end of the price scale, demand outstrips supply and housing costs stay high. High interest rates hinder the building of new homes and apartments, both because developers use credit to finance new projects and because few buyers can afford houses and condos.
Meanwhile, a growing number of economists—including some who work at the Fed—see other issues left untouched by higher interest rates, such as rising corporate profits (which some call profiteering) as key drivers of inflation, as well as global commodity prices, which the Fed can’t control. Dealing with these problems requires entirely different tools than what the Fed is used to using.
Before resorting once again to the broadsword of increased interest rates, Powell should remember that even a “soft landing” will be a crash landing for many, and that the Fed must consider broadening its toolkit.
This column was produced for Progressive Perspectives, a project of The Progressive magazine, and distributed by Tribune News Service.