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--:-- Noel King: This year, the Federal Reserve has raised interest rates four times. The Fed did so to fight the 9-ish percent inflation that's making life, groceries, gas, cars, furniture, all the things, a lot more expensive. But there's a trade-off. When interest rates go up, jobs take a hit. The Fed talks about this trade-off all the time. There is a thing they talk about far less. Who is going to lose jobs? Black Americans face twice the unemployment as white Americans, no matter what kind of an economy we have, a booming economy or a recession.
--:-- Noel King: Coming up on Today Explained, the devil's bargain we make to fight inflation. And we get to ask a Federal Reserve Bank president whether we can do anything other than feel really, really bad about it.
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--:-- Noel King: It's Today Explained. I'm Noelle King. Back in late August, I read with fascination an article that you wrote about what might happen if the U.S goes into a recession because of interest rate hikes. Now you know that a recession is bad for workers in general, but you look specifically at how Black workers would be affected. Why did you do that?
--:-- Talman Smith: So when you think about workers and the economy, often you can easily get caught in thinking about things in terms of aggregates. But of course, nobody lives in an aggregate world. We all operate within particular segments of society, particular walks of life. We're all from unique and different communities. It just so happens that for Black workers, the Black community, there is a remarkable consistency going back decades and decades that the Black unemployment rate runs usually about twice the white unemployment rate.
--:-- Talman Smith: And in fact, in certain decades, the Black unemployment rate runs at twice the general unemployment rate as well, the one that we see on headlines month after month. And so I was attracted to this story because essentially we are at a point in the Fed's inflation fight where there is a consensus view that there is going to be some sort of trade-off between lowering inflation and a rise in unemployment or just a general weakening in the labor market.
--:-- Talman Smith: That's sort of a way of saying that in order to achieve price stability, at least in the short term, American society may require double-digit Black unemployment. And I wanted to really ask myself as an establishment economics reporter, it doesn't get any more mainstream than the paper that I'm at, outside of me, ask society, what does that mean? And why is that the case? Why is the Black unemployment rate consistently so much higher? Twice? What's going on?
--:-- Talman Smith: Well, it's a pretty straightforward story. So the numbers would suggest that if you're Black, you're much more likely to be experiencing poverty. You're less likely to have formal education. You may have certain barriers to employment, like past arrests or incarceration. And we see that through a mix of coincidence, but also structural disadvantage that throughout many decades, the Black community has been subject to all of those misfortunes.
--:-- Talman Smith: But beyond the fact that the past reverberates to the present, economic research in the past, I'd say two decades has found a name that just reads culturally as African-American can actually count as a penalty against an applicant that has the same exact credentials, qualifications, in some studies, the same exact resume as a gentleman or a woman that has a name that reads as white.
--:-- Talman Smith: We now realize the way racial bias can infect us, even when we don't realize it. So that we're guarding against not just racial slurs, but we're also guarding against the subtle impulse to call Johnny back for a job interview, but not Jamal.
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--:-- Noel King: Let's talk about where we were even a year ago, Tal, before inflation became hot, before Americans had the sense that the economy was spiraling. How had Black workers in the U.S. been faring?
--:-- Talman Smith: We saw in the post-pandemic recession, or the initial post-pandemic recession recovery, that Black workers made ultimately modest in the scope of time, modest but meaningful gains. The nation's largest retailer, Walmart, announced today that it's giving a pay raise to hundreds of thousands of its employees. You saw workers not only just earn more pay but go from being in certain forms of insecure service work to finding jobs that are more stable that offer more benefits.
--:-- Talman Smith: To the extent there was and is a Biden boom, black workers were chief beneficiaries of it. And this is specifically benefiting some of these more marginalized groups, which have historically taken longer to recover out of previous recessions.
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--:-- Noel King: Let be honest. Are you happy with your job? Like really happy? The unfortunate fact is that a huge number of people can say yes to that. Far too many of us are stuck in a job we outgrown or one we never wanted in the first place. But still, we stick it out. And we give reasons like, what if the next move is even worse? I've already put years into this place.
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--:-- Noel King: Let's begin with you telling me your full name and what you do.
--:-- Neil Kashkari: My name is Neil Kashkari. I'm president of the Federal Reserve Bank of Minneapolis.
--:-- Noel King: What does your job entail?
--:-- Neil Kashkari: My job is to lead the Minneapolis Fed, which is one of 12 independent Federal Reserve banks spread out across the country. And our job is to represent this region. We're the ninth Federal Reserve District, and that's Minnesota, North and South Dakota, Montana, the Upper Peninsula of Michigan, and northwestern Wisconsin.
--:-- Neil Kashkari: We try to monitor the overall economy's activity, and then I participate in the Federal Open Market Committee meetings every six weeks when we set interest rates for the nation. Part of my job is to make sure that my region is represented in that deliberative process.
--:-- Noel King: A couple years back, Neil, the Fed started talking not just about unemployment in the U.S., but about Black unemployment in the U.S., almost like it was a separate thing. Now, we were just talking to Talman Smith from The New York Times, and we learned that it is arguably a separate thing, because it's usually twice what white unemployment is.
--:-- Neil Kashkari: I remember you as one of the people who started drawing focus to this, started saying this is important to pay attention to. Why did you do that?
--:-- Neil Kashkari: You know, for the years before the pandemic hit, we kept getting surprised. We thought that the economy was at full or what we call maximum employment. Everybody who wants a job has a job. We were hearing that from businesses that they couldn't find workers. And yet the economy continued to grow. People continue to find jobs and inflation didn't materialize.
--:-- Neil Kashkari: So that told us, well, wait a second, there must be more workers out there than we were realizing. And I would go into low-income communities and communities of color and African-American communities. And I met many groups that said, hey, we don't have jobs or we're stuck in a part-time job. We want more work.
--:-- Noel King: So you got so invested in this that at one point I remember you spent a day, correct me if I'm wrong, I'm trying to figure out exactly what happened here, but I think you spent a day living with a Black family in Minnesota who was struggling to make ends meet. Can you tell me a little bit about that?
--:-- Neil Kashkari: There's a group called FedUp, which is a group of labor activists in the country. They had a local chapter in North Minneapolis called Neighborhoods Organizing for Change. And there'd been a lot of heated discussions with the Federal Reserve and a lot of criticism of the Federal Reserve.
--:-- Neil Kashkari: And I said, hey, I want to go meet them. So will you please organize a meeting for me? I'll come and meet with your leaders, but I also want to meet with the families that you represent. And so then I went up there and we spent an afternoon together. And it was a wonderful afternoon.
--:-- Neil Kashkari: I mean, we had very honest conversations. They shared with me what they were experiencing day to day, trying to get jobs. And, you know, I just come from meetings with businesses who are telling me they can't find workers. And I realized there's a big gap. There's a big disconnect between what we're hearing from businesses who we tend to focus on and what workers are actually experiencing.
--:-- Noel King: So when we say unemployment without cleaving off Black unemployment, what you're saying is we miss a ton. You actually do have to get into that level of specifics to understand what's happening with this very large and important racial group in the U.S.
--:-- Neil Kashkari: Absolutely. You know, just the name, the unemployment rate, the way it's calculated, you have to declare yourself that I am looking for a job to be counted as being unemployed. There are a lot of Americans who've been struggling for a long time, and they've given up. When the government accountant calls them and says, are you looking for a job? They say, no, I'm not. They're missing. They're not included at all, as though they don't count.
--:-- Neil Kashkari: And many folks, it turns out, when a good job appears, when one becomes available, it turns out they go and they get it. And a lot of people who one month will say, I'm not looking for a job, very next month, they will end up taking a job. And so our understanding of who actually is available to work, it's much, much more complex than just saying, are you unemployed or not? It's a much more complex question, and it's a very important question.
--:-- Noel King: Let's talk about where we are now. So you know, Neil, that it's very perilous. The Federal Reserve is going to continue raising interest rates. That means black workers could see double-digit unemployment rates, especially if the United States goes into a recession, which no one wants. You support the Fed's rate hikes. Why?
--:-- Neil Kashkari: I support the hikes because we have to get the economy back into balance. The profound gains that we saw in 2017, 18, and 19 were all made possible in the context of an overall stable economy with low and controlled inflation.
--:-- Neil Kashkari: We went through the rapid pandemic. We went through the shutdown. We've got this uneven reopening. We have this massive inflation. And you know who inflation is hitting the worst? It hitting the low families the worst because they have the least flexibility to be able to adjust their behavior to change and respond to it.
--:-- Noel King: Is it worse to have a smaller paycheck due to inflation? Is that really worse than having no paycheck at all? I mean, we're talking about people being thrown out of their jobs. We know it's going to happen. There's not an easy answer, but I'll say it this way. Inflation literally affects everybody. The devastation of unemployment, unfortunately, fortunately and unfortunately affects a smaller number of people.
--:-- Neil Kashkari: And it's easier for the government to target assistance to those smaller number of people than it is to try to support all of the American people who are facing this high inflation. So there's an issue of numbers, but that's not an easy story to tell somebody who loses their job because for them it's overwhelming.
--:-- Noel King: But let me offer one other perspective. I reach out to a lot of labor groups, organized labor, workers. At a recent roundtable I had of labor union leaders in Minnesota, a labor leader who represents low-income service workers made the following statement to me, and I was surprised by it. She said, inflation is much worse for our low-income members than is a recession.
--:-- Neil Kashkari: And I said, I don't understand that. Explain that to me. How can inflation be worse than a recession?
--:-- Labor Leader: Because our members know how to deal with the recession. They lose their job. This happens all the time. They rely on family and friends. They help each other get through it because they're not all losing their jobs at the same time.
--:-- Labor Leader: The difference is with inflation, they all get hit by inflation, and there's no one to turn to for help.
--:-- Noel King: Now, I know I've got other friends in the labor movement who have a very different view of this topic. It's a very complicated topic, and there are no easy answers. But I do know we cannot allow 9% inflation to continue in the American economy. That is not going to be good for workers in the long term.
--:-- Neil Kashkari: Well, where does inflation come from? It comes from a mismatch between supply and demand. Demand for goods and services in the American economy is far outstripping our economy's ability to supply it.
--:-- Neil Kashkari: At the Fed, the only tools we have are demand tools. We can increase demand or lower demand by raising and lowering interest rates. So we can bring demand down. Our hope is that we get some help on the supply side. More workers come off the sidelines. There's more supply chains. They're less gummed up because of COVID. More people feel confident to go back to work because vaccines have been highly effective.
--:-- Neil Kashkari: All of those things should boost the supply side of the economy, and then we will have to do less work on the demand side to bring those two things down. But the demand tools are the only tools we at the Fed have.
--:-- Noel King: Does the Federal Reserve care about black people? Absolutely. Absolutely. The reason that I've made such an emphasis, and many of my colleagues have too, over the last seven or eight years to go into black communities and other communities of color is we want to make sure that we are hearing directly from important constituents that we are charged to serve.
--:-- Neil Kashkari: We are charged to represent them. They matter to the economy. They matter to the country. They matter to the Federal Reserve. Ultimately, we have very blunt tools. Ultimately, we cannot set a different interest rate for black Americans and white Americans. We have to pick monetary policy for the country as a whole, but we want to make sure that we have good visibility into all of these different communities because they matter.
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--:-- Noel King: Today's show was produced by Miles Bryan and edited by Matthew Collette. It was engineered by Efim Shapiro and rigorously fact-checked by Laura Bullard. The rest of our team includes Halima Shah, Siona Petros, Hadi Moagdi, Victoria Chamberlain, Avishai Artsy, and my co-host, Sean Ramos-Furram. Our supervising producer is Amina El-Sadi. We use music by Breakmaster Cylinder and Noam Hassenfeld. And we are distributed to public radio stations across these United States in partnership with WNYC in New York. I'm Noelle King. Today Explained is part of the Vox Media Podcast Network.
