FEDERAL RESERVE IS MORE THAN READY TO SACRIFICE WORKERS AT THE ALTAR OF PRICE STABILITY

On Wednesday, March 16th, 2022, the Federal Reserve decided to raise its key interest rate--the federal funds rate-- by a quarter of a percentage point, with six more increases coming by year's end. While a quarter of a percentage point is fairly miniscule, the take-home is clear: The Fed has every intention to deploy increased interest rates as a weapon to cool off the economy and to get a grip on a rate of inflation that, at last count, has surged 7.9% over the last 12 months. This policy possess the potential to push millions of working class Americans into the ranks of joblessness, with Black workers being at the front of the queue of those to be sacrificed at the altar of price stability.

Here's the quick take on how the whole thing is supposed to work: The Fed's increases the federal fund rate which, in turn, triggers rises in other interest rates. On credit cards. On mortgages. On business loans. All of which, in turn, puts a damper on consumer and business spending. This reduced spending releases the air out of the upward pressure on prices--which, of course, is registered as a decline in the most common metrics (e.g., the Consumer Price Index (CPI)) used to measure changes in the rate of inflation. The reduced spending induced by rising interest rates also runs the risk of throwing more and more people into the ranks of joblessness. As economist Stephanie Kelton observes, in its fight against inflation, "the Fed uses unemployed human beings as its primary weapon against inflation."

However, the chair of the Fed, Jerome Powell, is convinced that just the right balance can be struck between inflation and unemployment, and that a soft landing can be engineered where minimal damage is done to the labor market. He represents the consensus view within the Fed that the economy has largely bounced backed from the recession, and that the level of unemployment is now close to--or perhaps even below-- the "optimal" level of joblessness. Supposedly, we're at or close to full employment. Here's some of the major data points commonly cited in support of the view that the economy is approaching its unemployment sweet point and, therefore, capable of withstanding the effect of an interest rate increase:

• Unemployment is headed toward its pre-pandemic level. The most recent Jobs Report pegs February's 2022 unemployment rate at 3.8%. That's way down from the 6.2% recorded a year ago, and close to the 3.5% that reigned in February 2020, one month before COVID-19 started making its presence felt in the nation's labor markets.

• The employment level for people aged 25-64--the age range economists consider to the peak or prime years of one's working life-- is also headed upwards. The most recent data indicates that almost 80% of people in this age range are employed. That's up from the 76.6% a year ago, and close to its pre-pandemic level of 80.5%.

• More workers are voluntarily quitting their jobs. The percentage of workers voluntarily leaving their jobs is ticking upwards. January's 2022 quit rate came in at 2.8%, higher than both 2.4% that clocked in a year ago and the 2.3% recorded right before the COVID induced recession started to set in. Rising quit rates are often taken as evidence of a labor market resurgence. As an economy emerges from a recession and recovers some of the gigs lost during the downturn, workers gain confidence about their ability to land more desirable jobs and, therefore, are more likely to voluntarily quit a job during an economic upswing than downswing. As economist John Miller observes: "There is good evidence that by and large workers are quitting their jobs, not work." Again, voluntary quits can be--and often are--interpreted as signaling a strengthening economy and worker empowerment.

That first data point--the one on the unemployment rate-- looms particularly large in the Fed's decision to raise the interest rate. That unemployment rate of 3.8% is especially taken as evidence that economy is on the upswing, that labor markets are "tight," and that now is an appropriate time to get a handle on inflation.

And, by the way, just a few days after the Fed raised the interest rate, chairperson Powell made it abundantly clear that he was "all-in" in jacking rates up significantly higher if, in his judgement, that's what it takes to tame inflation. In prepared remarks for the National Association of Business Economics (NABE), Chairperson Powell pulled no punches when he stated: "In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well."

Translation: If some people must get sacrificed at the altar of price stability, then that's a price that'll have to be paid.

WHO PAYS THE PRICE?

And while that price will be paid by workers in general, it'll be Black workers who'll be particularly slammed by a policy that deploys higher interest rates and increased joblessness as the primary weapons for combatting inflation. On this point, it's critical to keep before us something that too often goes missing: At 6.6%, the Black unemployment rate remains twice as high as that for Whites, and while that's lower than the 9.8% that prevailed a year ago, it's still high and indicative of the fact that Black workers have yet to "recover" from the COVID induced recession. In fact, if the aggregate unemployment rate were as high as the Black rate, no one--including Jerome Powell-- would be talking about how "tight" the labor market is. If the aggregate rate were 6.6%, hardly anyone would be fixing their mouths to call for policies that would drive joblessness up even higher.

What's more, between January 2022 and February 2022 (the most recent data available), the unemployment rate of Black women actually ticked upwards, from 5.8% to 6.1%. In fact, Black women are the only group whose unemployment rate went in the "wrong" direction over the last thirty days.

Cut it wherever and however you want, the labor market for Black workers is far from tight. The Fed is threatening to slam on the brakes, and their heavy reliance on the aggregate unemployment rate to gauge the health of the labor market is a sure fire for doing what is all too often done to Black workers: situating them at the front of the line to be sacrificed at the altar of price stability.