With the coronavirus pandemic subsiding in the Unites States, many parts of the US economy appear to be rebounding. However, speaking via webcast at the annual Just Economy conference of the National Community Reinvestment Coalition (NCRC), Federal Reserve Chair Jerome Powell outlined many of the continuing challenges and answered many questions moderated by Jesse Van Tol, CEO of NCRC.
In his remarks, Powell noted that while at “a 30,000-foot level” the economy shows improvement, it was important to also look at “what is happening at street level. Lives and livelihoods have been affected in ways that vary from person to person, family to family, and community to community.”
The Federal Reserve chair notably added, “The economic downturn has not fallen evenly on all Americans, and those least able to bear the burden have been the hardest hit.”
Among the Federal Reserve data Powell shared was the following:
- As of February 2021, “20 percent of workers who were in the lowest earnings quartile in February of 2020 were not employed a year later, compared to six percent for workers in the highest quartile.”
- Layoffs also varied by education level and race. In 2020, 12 percent of those who had bachelor’s degrees faced layoffs, compared to 20 percent of those who lacked bachelor’s degrees. Also in 2020, 14 percent of white workers were laid off at some point during the year, compared to more than 20 percent of Black and Latinx workers.
- Business declines were particularly dramatic. Powell reports that “Fed research found that 80 percent of those surveyed reported a decline in revenue, with two-thirds of those businesses experiencing losses of at least 25 percent.” Powell adds that businesses of color were especially hard hit: “67 percent of both Asian- and Black-owned firms and 63 percent of [Latinx]-owned firms had to reduce their operations compared to 54 percent for their white counterparts.”
- Many parents, especially women workers, have been forced out of the workforce due to a lack of childcare supports. As Powell reports, “22 percent of parents were either not working or working less because of disruptions to childcare or in-person schooling. Black and [Latinx] mothers—36 percent and 30 percent, respectively—were disproportionately affected.” These numbers show up in a declining percentage of adult Americans who are in the paid labor force. Powell reports that labor force participation declined around four percentage points for Black women and Latinas, “compared to 1.6 percentage points for white women and about two percentage points for men overall.”
Powell was less forthcoming on policy solutions, although he did offer two specific areas where the Fed would act. One was a commitment to interpret “maximum employment as a broad and inclusive goal.” Although that sounds vague, as Powell explained, for the Fed this means ensuring that unemployment is low in low-income communities and BIPOC communities and not just low overall.
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As Powell elaborated in response to an audience question, “There is no one indicator [of unemployment]. It’s a broad range of measures…by demographic and age groups. It is also labor force participation. There are a ton of people who are effectively unemployed, who would come back in a strong labor market.” Powell noted that if there is truly full employment, then wages should also be rising, with the implication that if wages are not rising, that is likely an indicator of hidden unemployment.
Powell also said to promote greater economic equality, the Fed would step up its enforcement of both the Fair Housing Act and the Equal Credit Opportunity Act, the federal fair lending laws that prohibit discrimination in lending. “Violations of the fair lending laws, along with other illegal credit practices, are taken into account during bank evaluations under the Community Reinvestment Act (CRA).” Powell specifically pledged to boost supervision to curtail racial discrimination.
In a closing question at the session, Van Tol asked Powell whether the disruption created by COVID-19 was a kind of “trial run” for the economic disruption global heating might deliver in the future. Powell acknowledged that might be so.
The coronavirus pandemic certainly shows us the possibility of global economic disruption. Many had imagined it. Now we’ve been through it once and we’re still recovering. And in many parts, they are not recovering yet. There might be a parallel to climate change possibly.
Powell said the Fed’s role was to understand the risks, but that climate policy is clearly a congressional responsibility. Powell added, “In terms of overall stability, climate change will appear across the financial system, not just the banking system. This is an issue that is going to be with us for a long, long time.”