Targeting Black Unemployment Would Keep Fed Rate Near Zero to 2025
Targeting reductions in the U.S.’s Black unemployment rate would keep interest rates near zero for at least five years.
(Bloomberg) -- Targeting reductions in the U.S.’s Black unemployment rate would lead the Federal Open Market Committee to keep interest rates near zero for at least five years, a new Bloomberg Economics analysis found.
“As racial disparities figure more explicitly in the FOMC’s deliberations, that timeline could be even longer,” economist Andrew Husby wrote.
Black joblessness has been much higher than overall U.S. unemployment since at least 1972, when the U.S. Bureau of Labor Statistics began compiling the data.
The Federal Reserve in late August approved a new framework for monetary policy calling for “broad-based and inclusive” gains in the jobs market. Presidential candidate Joe Biden has called for an amendment to the Federal Reserve Act that would require the Fed to report on racial economic gaps and what policies the Fed is implementing to close these gaps.
The Bloomberg Economics analysis used variations of the Taylor Rule -- a formula developed by economist John Taylor to set appropriate monetary policy -- as a way to consider how rates would differ if policy were focused on Black unemployment. The alternative Taylor Rule often resulted in a negative interest rate, meaning rates would need to be at zero for longer.
“The message to the Fed is to be more resolute in providing stimulus during recessions, and less quick to pull support during expansions,” Husby wrote.
Using that approach would have delayed the liftoff of interest rates from near zero in 2015 to 2016 and rates would have reached a peak of 2% rather than 2.5% during the last expansion.
Concern over minority unemployment has risen this year as the Covid-19 pandemic eliminated service jobs such as those at restaurants, hotels and airlines. That disproportionately hurt Blacks and Latinos: Unemployment among White Americans was 7% in September, compared with a Black rate of 12.1% and 10.3% for Hispanics in the U.S.
Minorities were making progress in landing jobs and building wealth in the latter years of the 10-year expansion that ended in February.
Median family income rose 5% in the three years through 2019, to $58,600, the Fed’s latest Survey of Consumer Finances shows. Gains were especially strong for groups that had largely been left out of the post-2008 rebound, including Black Americans, those younger than 35, and those without college degrees.
Black American families typically held about one-eighth the wealth of White households in 2019 and made 60 cents for every dollar earned by White families.
The gap has been driven by the snowballing effect of inheritance and stronger support networks, the Fed said. Almost 30% of White families reported receiving an inheritance in 2019, compared with 10% of Black households and 7% of Latinos.
©2020 Bloomberg L.P.