Millennials are not an “authorized generation”

Source: Shutterstock.

It may be inconceivable for the wealthy class, but there are actually very good reasons not to raise interest rates quickly or dramatically. Yes, inflation is worrisome, Ukraine is burning, and Covid-19 still threatens to disrupt supply chains. However, the reality facing many Americans — if not low-income and middle-class workers around the world — is quite different from what the stock market and suite of compelling economic indicators are telling us.

Millions of Americans have yet to recover from the Covid-19 recession. Black unemployment, at 6.6%, remains stubbornly higher than the headline rate of 3.8%, and is double that of whites. Unemployment among black women actually rose in February from the previous month. The gender pay gap also remains wide – women are paid on average 22% less than men – and financial security is elusive. Only 9% of low-income people say their wages have kept pace with the cost of living, even as wage growth largely accelerates.

Young savers, meanwhile, have been disproportionately impacted by the pandemic, with 32% of millennials and 23% of Gen Z carrying more credit card debt than they have in savings. ’emergency. That compares to 15% for baby boomers, holders of half of the national wealth, whose net worth has increased by $15.5 trillion, or 28%, since the first quarter of 2020. The figure has climbed by 65% for Gen X.

It’s against this backdrop that recent comments by BlackRock Inc. co-founder Rob Kapito, who made over $24 million in 2020, struck a chord. “For the first time, this generation is going to walk into a store and not be able to get what they want,” he said. “And we have a very empowered generation that never had to sacrifice.” (It’s unclear if he was referring to Gen Z or Gen Y.)

Kapito is not wrong to point to the broader trend of what he called “scarcity inflation,” triggered by a shortage of everything from workers and homes to oil and fertilizers. It would seem, however, that the impact has little to do with the law. On the contrary, young people deserve a safer future than the hand they were given – in 2008 by the excessive risk-taking of a rapacious horde of financiers and in 2020 by the simple bad luck of the Covid-19 epidemic.

Where are higher borrowing costs taken into account? The Federal Reserve – which raised interest rates by a quarter point this month – is seeking to rein in runaway price increases. Making money more expensive to spend could help rein them in, a welcome reprieve as inflation hits a four-decade high. But rate hikes won’t solve everything, especially supply chain problems and soaring oil prices, says William Spriggs, chief economist at the AFL-CIO. “It doesn’t solve the problem that causes inflation,” he told NPR earlier this month. “It’s a series of supply shocks… But tomorrow the price of oil isn’t going to go down because the Fed has raised interest rates.”

Indeed, higher rates could have a series of negative consequences that would particularly affect young people and people of color. One would be a slower pace of hiring – a worrying prospect for swaths of the workforce still struggling to land full-time, well-paying jobs. Despite corporate complaints about labor shortages and historically high rates of worker quits, those in service sectors such as retail and restaurants — not to mention healthcare — still face challenges. unpredictable schedules without stable benefits. High interest rates also make buying a home more expensive. Black borrowers already pay higher mortgage rates than whites and had the lowest approval rate by lenders nationwide for refinancing in 2020 compared to whites, Hispanics and Asians.

Ultimately, interest rates are a “famously broad and brutal” tool – in the words of Fed Chairman Jerome Powell – for the finely tuned task of funneling liquidity to the corners of the economy that need it the most. “Eliminating inequality, racial discrimination and racial disparities and that kind of stuff is really something that fiscal policy and other policies … focus better on,” he said during a press conference last September.

You’re fighting with the army you have – and if that’s the case, better think about the economy broadly before continuing with 50 basis point hikes, as markets increasingly expect. more. It doesn’t take a particularly brave bond fund manager calling for ever higher and ever faster rate hikes as the value of your giant pile of assets incinerates in a bonfire of inflation. For those who still dream of opening a 401(k), the urgency is much less obvious.

Copyright 2022 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Previous 670 Credit Score: Is It Good or Bad? | Credit card
Next Here's why half of Brits think the current credit scoring system is flawed