Governor Michelle W. Bowman
Building Economic Resilience in Communities
(“We know that economic downturns are hardest for lower-income people, those with less education, and some minority groups. I believe that government responses to the pandemic—the lockdowns, school closures, and economic restrictions on businesses—significantly widened differences by income, education, race, and gender, and those disparities have persisted during the recovery. For example, we know that those with a high school education or less were among the hardest hit in the downturn last spring, and I am concerned about those individuals falling behind. In 2020, 20 percent of prime-age adults with less than a bachelor's degree experienced a layoff, 8 percentage points higher than for those with at least a bachelor's degree.
It seems that women, and especially minority women, have shouldered a larger share of adverse labor market impact because of limited child care options and the need to assist school-aged children with remote learning during the pandemic. The impact of COVID-19 has been especially hard for Black and Hispanic women in the workforce. Over 3.5 percent of Black and Hispanic women dropped out of the labor force altogether, compared with 1.7 percent of women overall.
We also see divergent outcomes for small business owners across race and ethnicity. In the Federal Reserve's 2021 Small Business Credit Survey, 52 percent of Asian-owned, nonemployer small businesses reported their financial conditions as poor, compared with 38 percent of Hispanic-, 36 percent of Black-, and 28 percent of White-owned firms.
The Federal Open Market Committee views the maximum level of employment as a broad-based and inclusive goal. Thus, these gaps in employment and other measures of economic wellbeing can be interpreted to show that more progress is needed to reach maximum employment. The goal is to promote an economy in which all can contribute to and share in the benefits of economic growth.”)
Governor Lael Brainard
Remaining Steady as the Economy Reopens
(“Constraints related to schooling and childcare are ongoing, and these have disproportionately affected Black and Hispanic mothers and mothers in lower-income households. …The shortfall in the prime-age EPOP ratio is around 5 percentage points for Black and Hispanic workers relative to their October 2019 peaks.")
Governor Lael Brainard
Private Money and Central Bank Money as Payments Go Digital: an Update on CBDCs
(“Today 5.4 percent of American households lack access to bank accounts and the associated payment options they offer, and a further 18.7 percent were underbanked as of 2017. The lack of access to bank accounts imposes high burdens on these households, whose financial resilience is often fragile. At the height of the pandemic, the challenges associated with getting relief payments to hard-to-reach households highlighted that it is important for all households to have transactions accounts. The Federal Reserve's proposals for strengthening the Community Reinvestment Act emphasize the value of banks providing cost-free, low-balance accounts and other banking services targeted to underbanked and unbanked communities. And a core goal of FedNow is to provide ubiquitous access to an instant payments system via depository institutions.
CBDC may be one part of a broader solution to the challenge of achieving ubiquitous account access. Depending on the design, CBDC may have the ability to lower transaction costs and increase access to digital payments. In emergencies, CBDC may offer a mechanism for the swift and direct transfer of funds, providing rapid relief to those most in need. A broader solution to financial inclusion would also need to address any perceived barriers to maintaining a transaction account, along with the need to maintain up-to-date records on active accounts to reach a large segment of the population.
To explore these broader issues, the Federal Reserve is undertaking research on financial inclusion. The Federal Reserve Bank of Atlanta is launching a public–private sector collaboration as a Special Committee on Payments Inclusion to ensure that cash-based and vulnerable populations can safely access and benefit from digital payments.15 This work is complemented by a new Federal Reserve Bank of Cleveland initiative to explore the prospects for CBDC to increase financial inclusion. The initiative will identify CBDC design features and delivery approaches focused on expanding access to individuals who do not currently use traditional financial services.”)
Governor Christopher J. Waller
The Economic Outlook and Monetary Policy
(“The unemployment rate is still 2.5 percentage points higher than it was in February 2020, and we know that it is even worse for some groups—nearly 10 percent for Black workers and nearly 8 percent for Hispanics.”)
Governor Lael Brainard
Patience and Progress as the Economy Reopens and Recovers
(“At the time of the April jobs report, nearly two-thirds of students had yet to return to fully in-person schooling, and this share had only increased by 8 percentage points since March. Consistent with this, the labor force participation rate of women ages 25 to 45 was unchanged in April, after an increase in March that coincided with a surge in education hiring and school reopening. Similarly, April saw a small increase in the number of women who reported that they wanted a job but were out of the labor force for family responsibilities, following a large decline in March. Recent research shows that the pandemic has taken a particularly significant toll on the labor market status of many Black and Hispanic mothers and mothers with lower incomes.
… While labor market conditions have improved in aggregate, significant disparities persist. Although the prime-age EPOP ratio has increased for all racial groups over the past four months, the ratio for Black prime-age workers, at 72.1 percent, is still over 6 percentage points lower than the white prime-age EPOP ratio, while the gap for Hispanic prime-age workers relative to white workers is almost 5 percentage points.
Job losses are disproportionately concentrated in low-wage, high-contact sectors, suggesting that the workers least able to shoulder the economic effect of job loss have faced the greatest challenges.”)
Chair Jerome H. Powell
(“The economic downturn has not fallen evenly on all Americans, and those least able to bear the burden have been the hardest hit.
The pain is all the greater in light of the gains we had seen in the years prior to the pandemic. COVID swept in as the United States was experiencing the longest expansion on record. Unemployment was at 50-year lows, and inflation remained under control. Wages were moving up, particularly for the lowest-paid workers. Long-standing racial disparities in unemployment were narrowing, and many who had struggled for years were finding jobs. It was not until the later years of that expansion that its benefits had started to reach those on the margins. During our Fed Listens events, we met with people around the country and heard repeatedly about the life-changing gains of the strong labor market, particularly at the lower end of the income spectrum. Just a few months later, those stories changed to ones of job losses, overextended support services, and businesses built over generations closing their doors for good.
While the recovery is gathering strength, it has been slower for those in lower-paid jobs: Almost 20 percent of workers who were in the lowest earnings quartile in February of 2020 were not employed a year later, compared to 6 percent for workers in the highest quartile. The Fed's latest Survey of Household Economics and Decisionmaking—or SHED report—which will be published later this month, will show that, for prime-age adults without a bachelor's degree, 20 percent saw layoffs in 2020 versus 12 percent for college-educated workers. And more than 20 percent of Black and Hispanic prime-age workers were laid off compared to 14 percent of white workers over the same period.
Small businesses have also faced immense difficulties. 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. A recent Federal Reserve special report looked specifically at the impact on businesses owned by people of color, who reported greater challenges. For example, 67 percent of both Asian- and Black-owned firms and 63 percent of Hispanic-owned firms had to reduce their operations compared to 54 percent for their white counterparts.
Our upcoming SHED report notes that 22 percent of parents were either not working or working less because of disruptions to childcare or in-person schooling. Black and Hispanic mothers—36 percent and 30 percent, respectively—were disproportionately affected. In a similar vein, labor force participation declined around 4 percentage points for Black and Hispanic women compared to 1.6 percentage points for white women and about 2 percentage points for men overall. The Fed is focused on these long-standing disparities because they weigh on the productive capacity of our economy. We will only reach our full potential when everyone can contribute to, and share in, the benefits of prosperity.
Achieving broadly shared prosperity will take action from across society, from fiscal and other government policy to private-sector initiatives to the work everyone here does. The Fed can contribute as well. Using our monetary policy tools, the Fed promotes maximum employment and price stability—two foundations of a strong, stable economy that can improve economic outcomes for all Americans. We view maximum employment as a broad and inclusive goal. Those who have historically been left behind stand the best chance of prospering in a strong economy with plentiful job opportunities. Our recent history highlights both the benefits of a strong economy and the severe costs of a weak one.
Supervisory tools also have a role to play. As part of our policy responsibilities, the Board of Governors enforces 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). We see our robust supervisory approach as critical to addressing racial discrimination, which can limit consumers' ability to improve their economic circumstances, including through access to homeownership and education.
The Fed's community development function plays a role as well, studying what works, convening stakeholders on both the national and District level, and helping financial institutions find opportunities to invest and expand credit opportunities in low- and moderate-income communities.
The economic landscape has changed, and efforts to provide access and credit to communities must change with it. Last year, the Fed issued a proposal for a strengthened, modernized CRA framework, with the objective of building broad support among both external stakeholders and participating agencies. Our goal is to strengthen the core purpose of meeting the credit needs of low- and moderate-income communities.”)
Governor Lael Brainard
Remaining Patient as the Outlook Brightens
("Although the unemployment rate has moved down 1/2 a percentage point since December, the K-shaped labor market recovery remains uneven across racial groups, industries, and wage levels. The employment-to-population (EPOP) ratio for Black prime-age workers is 7.2 percentage points lower than for white workers, while the EPOP ratio is 6.2 percentage points lower for Hispanic workers than for white workers—an increase in each gap of about 3 percentage points from pre-crisis lows in October 2019.
Workers in the lowest-wage quartile continued to face staggering levels of unemployment of around 22 percent in February, reflecting the disproportionate concentration of lower-wage jobs in services sectors still sidelined by social distancing. The leisure and hospitality sector is still down almost 3.5 million jobs, or roughly 20 percent of its pre-COVID level. This sector accounts for more than 40 percent of the net decline in private payrolls since February 2020. Overall, with 9.5 million fewer jobs than pre-COVID levels, we are far from our broad-based and inclusive maximum-employment goal.")
Governor Lael Brainard
How Should We Think about Full Employment in the Federal Reserve's Dual Mandate
("Disaggregating the overall unemployment rate reveals that workers in the lowest wage quartile face Depression-era rates of unemployment of around 23 percent. In part, this rate likely reflects the concentration of lower-wage jobs in service industries that are strongly reliant on in-person contact, or at least in-person work, while a larger proportion of higher-wage jobs are currently being performed remotely or with reduced levels of in-person contact.
There is also important information in the disaggregation of unemployment by different racial and ethnic groups. Figure 1 shows the prime-age unemployment rate overall and on a disaggregated basis. There are notable persistent gaps between different racial and ethnic groups, and the sizes of those gaps tend to vary over the business cycle.
For example, historically, the ratio of the Black unemployment rate to the white unemployment rate is around 2 for prime-age workers. On average, a 1 percentage point increase in the white unemployment rate is accompanied by a 2 percentage point increase in the Black unemployment rate. This gap narrows considerably the longer an expansion progresses. At the beginning of 2015, a time when many economists believed the overall unemployment rate had reached its "normal" rate, the gap between the Black and white prime-age unemployment rates stood just under 5 percentage points, roughly at its average level since 1972. By September 2019, that gap had reached a historical minimum of 1.7 percentage points, and the gap between the Hispanic and white prime-age unemployment rates had fallen to 0.3 percentage point.
The unemployment gaps between racial and ethnic groups widened again during the pandemic. Currently, for prime-age individuals, the gaps between the white unemployment rate and the Black and Hispanic unemployment rates are roughly 4 percentage points and 3 percentage points, respectively.")
Governor Michelle W. Bowman
Economic Inclusion in Lower-Income Communities
("At the Federal Reserve, our community development mission is to promote economic growth and financial stability across the country, particularly in vulnerable communities. The ability to access quality education and training to build workforce skills is critical for low-income workers seeking greater opportunity for themselves and their families. Likewise, reducing the disparities in labor market opportunities among individuals in our society helps to support broader economic growth and financial stability.
These issues have taken on even greater importance over the past year. The COVID-19 pandemic has upended our personal and professional lives and continues to cause economic hardship for many Americans. While the economy has recovered substantially from the effects of the pandemic, it is concerning to see signs that the improvements have been uneven, with some households continuing to struggle with unemployment and facing financial difficulty.
Information from the Federal Reserve Board's Survey of Household Economics and Decisionmaking, or SHED, provides evidence of these disparities. In the July 2020 responses to the SHED, many households reported major employment disruptions due to COVID-19, including layoffs, reductions of hours, or unpaid leave. By mid-summer, many of the affected individuals had returned to work, and many were receiving unemployment insurance benefits and other financial assistance. Even so, unemployment remained very high in July, and 23 percent of SHED respondents said they were either 'just getting by' or 'finding it difficult to get by.' Not surprisingly, those experiencing employment disruptions disproportionately reported that they were likely to have difficulty paying their bills.
The survey showed that employment disruptions and financial challenges disproportionately affected people of color and low-income families. And, unlike during previous recessions, a larger share of working women than men were laid off from their jobs.")
Chair Jerome H. Powell
Getting Back to a Strong Labor Market
("A strong labor market that is sustained for an extended period can deliver substantial economic and social benefits, including higher employment and income levels, improved and expanded job opportunities, narrower economic disparities, and healing of the entrenched damage inflicted by past recessions on individuals' economic and personal well-being.
… At the end of 2015, the Black unemployment rate was still quite elevated, at 9 percent, despite the relatively low overall unemployment rate. But that disparity too began to shrink; as the expansion continued beyond 2015, Black unemployment reached a historic low of 5.2 percent, and the gap between Black and white unemployment rates was the narrowest since 1972, when data on unemployment by race started to be collected. Black unemployment has tended to rise more than overall unemployment in recessions but also to fall more quickly in expansions. Over the course of a long expansion, these persistent disparities can decline significantly, but, without policies to address their underlying causes, they may increase again when the economy ultimately turns down.")
Governor Lael Brainard
Full Employment in the New Monetary Policy Framework
("Lifting the lives of working people is at the heart of economic policymaking. The deep and disparate damage caused by the pandemic, coming just over a decade after the financial crisis, underscores the vital importance of full employment, particularly for low- and moderate-income workers and those facing systemic challenges in the labor market.")
Governor Lael Brainard
Supporting Responsible Use of AI and Equitable Outcomes in Financial Services
("To harness the promise of machine learning to expand access to credit, especially to underserved consumers and businesses that may lack traditional credit histories, it is important to be keenly alert to potential risks around bias and inequitable outcomes. For example, if AI models are built on historical data that reflect racial bias or are optimized to replicate past decisions that may reflect bias, the models may amplify rather than ameliorate racial gaps in access to credit. Along those same lines, the opaque and complex data interactions relied upon by AI could result in discrimination by race, or even lead to digital redlining, if not intentionally designed to address this risk. It is our collective responsibility to ensure that as we innovate, we build appropriate guardrails and protections to prevent such bias and ensure that AI is designed to promote equitable outcomes. As Rayid Ghani notes, "…[A]ny AI (or otherwise developed) system that is affecting people's lives has to be explicitly built to focus on increasing equity and not just optimizing for efficiency…[W]e need to make sure that we put guidelines in place to maximize the chances of the positive impact while protecting people who have been traditionally marginalized in society and may be affected negatively by the new AI systems.'")