Black American employment growth is at risk as the Fed tightens interest rates

Black workers led the US job recovery after the Covid crisis, but economists warn their gains will be reversed as the Federal Reserve tries to cool the economy with aggressive interest rate hikes.

Earlier this year, rising wages and labor shortages pulled black workers into the workforce at record levels. Black Americans worked and looked for work at a higher rate than white Americans in May for the first time since 1972, according to Labor Department data. Employers have reduced job requirements, expanded upskilling programs and diversified their recruitment schemes to fill their ranks amid staff shortages, giving historically disadvantaged workers new opportunities in the process.

While unemployment and labor force participation rates for workers of color have held relatively steady in recent months, rising interest rates and a worsening labor market could reverse those gains. Employment has already fallen in recent months in several industries that disproportionately employ workers of color, including retail, transportation and warehousing.

Between September and November, general merchandise stores, including department stores, lost 71,500 jobs, and the warehousing and storage industry lost 41,000 jobs. Many of these industries rely on lower-wage workers, whose average annual wages often range from $30,000 to $50,000 in retail and warehousing.

William Spriggs, an economics professor at Howard University and chief economist for the AFL-CIO union, says that “the moment companies stop hiring. . . the unemployment rate rises because unemployed people cannot avoid unemployment. And it hurts black workers first and foremost.”

Spriggs added that “the big rebound in black labor force participation that has really helped black workers over the last six months. . . it goes away.”

Fears of the US economy slipping into recession have crept in as the Fed has pushed ahead with its most aggressive series of rate hikes since the early 1980s. To counter decades of high inflation, the central bank has raised its benchmark policy rate in less than a year from nearly zero in March to nearly 4.5 percent now. Further rate hikes are expected next year, with senior officials predicting the federal funds rate will reach 5.1 percent.

Policymakers believe there is room for inflation to return to the Fed’s 2 percent target without major job losses and a recession, as many Wall Street economists and academics argue. A recent survey by the Financial Times in conjunction with the University of Chicago’s Booth School of Business found that the vast majority of leading economists expect a recession next year, which they warn could push the unemployment rate above the current 5.5 percent. from 3.7 percent. cent.

Most Fed officials currently forecast the unemployment rate to rise by about 1 percentage point next year to 4.6 percent and remain at that level through the end of 2024.

Economists and politicians recognize that people of color are disproportionately affected when the unemployment rate rises, especially when there is a recession, even a mild one.

“Black Americans have never had a low unemployment rate,” said Algernon Austin, director of racial and economic justice at the Washington-based Center for Economic and Policy Research. “The unemployment rate ranges from high to very high to extremely high.”

“It’s important to realize that a mild recession means going from high unemployment to very high unemployment for blacks.”

Before the pandemic, when the US labor market was in good shape, the unemployment rate for black Americans was roughly twice that of white and Asian adults. In 2019, it was 6.1 percent, compared to 3.3 percent and 2.7 percent for white and Asian adults, respectively. For Hispanic adults, it was 4.3 percent.

At the worst of the Covid economic crisis, the black unemployment rate rose to almost 17 percent. For white workers, it was slightly lower at 14 percent.

Fed officials stressed that inflation is also hitting those communities the hardest, and that they need to get prices back under control to return to a healthy economy. Failure to do so in the near term will also mean more pain, they argue, as the central bank will have to tighten the brakes on the economy even more.

“Without price stability, the economy works for nobody,” Fed Chairman Jay Powell said in mid-December at a year-end news conference. “We will not achieve a sustained period of strong labor market conditions that will benefit everyone.”

Austin raised concerns about other factors, such as the war in Ukraine and China’s Covid policies, which are beyond the Fed’s control but have too much influence on the trajectory of inflation. He warned that the central bank was not only imposing “unnecessary” costs on the most economically vulnerable, but also reducing their ability to handle price pressures they were already struggling to cope with.

“[Put] people are unemployed, so they will not withstand inflation,” he said.