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By KATE DAVIDSON and AUBREE ELIZA WEAVER
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Uneven pain — Americans really, really hate inflation. It’s a painful lesson that policymakers at the Federal Reserve and the White House are relearning after decades of relatively low and stable prices.
But the pain isn’t shared evenly. Lower-income households who spend a greater share of their budgets on essentials like food and energy tend to be hit harder by the effects of higher inflation.
That was true before the pandemic, even when prices were relatively stable. But the disparities between different demographic groups have surged since price pressures started accelerating in early 2021, according to an analysis by researchers at the New York Fed.
The researchers looked at major consumer spending categories, such as transportation, gas and groceries, to come up with a new measure of inflation that takes account of each demographic group’s consumption basket — that is, how they allocate their spending.
In 2019, they found Black and Hispanic Americans experienced slightly lower inflation than the national average, and Asian Americans slightly higher. (Inflation for white Americans was in line with the national average.) During the 2020 recession, inflation rose for Asian Americans and fell for Black, white and Hispanic Americans, before leveling off.
Fast forward to early 2021: As inflation started climbing last year, the disparities between demographic groups started to widen. A lot.
Black and Hispanic Americans were hit with higher inflation, while for Asian Americans, it was lower. While the size of the disparities are not huge compared to the national average — 0.2 to 0.6 percentage point higher for Black and Hispanic Americans in May, and 0.5 percentage point lower for Asian Americans — the gaps between demographic groups were more than twice as large as those in 2019, the researchers found.
Those widening disparities “suggest large changes in the magnitude of inflation inequality,” wrote Ruchi Avtar, Rajashri Chakrabarti and Maxim Pinkovskiy.
What’s more, the researchers acknowledge their method probably understates the disparities, “because, in addition to consuming different bundles of goods, different demographics likely face different prices for the same goods, with less advantaged demographics facing higher price growth.”
Why does it matter?
It’s another wrinkle in the debate over how the Fed is trying to steer the economy through the highest inflation in decades.
In some ways, this is the reverse of the problem policymakers faced following the 2007-09 recession, when inflation remained very low but unemployment stayed elevated for years, with some groups experiencing long spells of joblessness, the Fed researchers noted.
Following that slow recovery, in which the Fed faced some criticism for raising rates too early, the Fed under Chair Jerome Powell revamped its policy framework, with a sharper focus on promoting “broad-based and inclusive” maximum employment.
That meant the Fed kept rates low last year, even as inflation began to rise, fostering a remarkably fast labor market recovery that saw the employment gaps between demographic groups quickly narrow. At the same time, however, price pressures soared and broadened, and hit some groups harder than others.
Fed Chair Jerome Powell testifies before the Senate Banking committee last month. | Win McNamee/Getty Images
Democrats are now urging the Fed not to knock the labor market recovery off course, warning that it would hurt less advantaged workers the most.
Powell’s response: Allowing inflation to become entrenched would be worse than a recession. The New York Fed analysis helps illustrate his point.
“We know from history that that will hurt the people we like to help, the people in the lower-income spectrum who suffer now from high inflation,” he said during a June 22 Senate Banking hearing. “That would hurt them more than anyone. So we can’t fail on that task.”
IT’S WEDNESDAY — Another sign of the hot labor market? MM is packed with job moves today, and just in time for the latest JOLTS report!
Have some labor turnover news to share? Or just a hot tip or story idea? Send them our way: [email protected] , [email protected] , or on Twitter @katedavidson or @aubreeeweaver.
Job openings and quits data released at 10 a.m.
FIRST IN MM: DRAKE TAPPED AS DEPUTY NEC DIRECTOR — The White House has brought on Office of Management and Budget official Celeste Drake as the new deputy director of the National Economic Council for labor and economy, a White House official tells MM.
Drake, a former union official and trade expert, was appointed last April as OMB’s first Made in America director, helping shape and implement federal procurement and financial management policy. She’ll replace Seth Harris, whom MM reported left the administration last month. (h/t Daniel Lippman and Alex Thompson)
“Celeste has already proven herself to be a valuable leader in the Biden Administration and I’m thrilled she will be joining the NEC in this new role,” NEC Director Brian Deese said in a statement to MM. “Her deep expertise will be vital as we continue to advance the President’s strategy to grow our economy from the bottom up and middle out.”
Prior to joining the administration, Drake served as executive in charge of government affairs for the Directors Guild of America. She was previously the trade and globalization policy specialist for the AFL-CIO and is a Hill alum. (A bit of trivia: She’s also a former high school economics and history teacher!)
AFL-CIO President Liz Shuler told MM there is “no better advocate for working people than Celeste Drake.”
“She has worked with President Biden to put workers first, always stands her ground and has often faced down powerful forces to advance the cause of America's workers. Celeste is tireless, hard-working and I have no doubt she will be a force in her new position.”
WALL STREET SLIDE TAKES BITE OUT OF PUBLIC PENSION FUNDS — Our Nick Niedzwiadek: “This year's financial market selloff has battered the pension funds of millions of public-sector workers that had been on the upswing in recent years as the Great Recession receded from view.
“And though stocks have rebounded somewhat after crossing into bear market territory in mid-June, the downturn is the worst start to a calendar year in decades and raises the prospect of the retirement funds having to raise costs on workers or their government employers, and may prompt administrators to reexamine their projections for the coming years.”
RED STATES ARE WINNING THE POST-PANDEMIC ECONOMY — WSJ’s Josh Mitchell: “The pandemic has changed the geography of the American economy. By many measures, red states — those that lean Republican — have recovered faster economically than Democratic-leaning blue ones, with workers and employers moving from the coasts to the middle of the country and Florida.”
JPMORGAN FINED $850K FOR ALLEGED SWAP REPORTING FAILURES — Reuters: “JPMorgan Chase & Co will have to pay an $850,000 penalty to the U.S. Commodity Futures Trading Commission (CFTC) for allegedly failing to report certain foreign currency swaps, the regulator said on Tuesday. The commission found that the bank failed to report nearly 2.1 million short-dated foreign exchange swap transactions from September 2015 to February 2020.”
CHINESE ENVOY EXPRESSES CONCERN OVER U.S. TARIFFS WITH YELLEN — AP: “China’s envoy to trade war talks with Washington expressed concern about U.S. tariffs on Chinese imports during a phone call Tuesday with Treasury Secretary Janet Yellen, the Ministry of Commerce announced, but it gave no indication of progress toward resolving an array of conflicts. Vice Premier Liu He and Yellen also discussed the global economy and supply chain problems, a ministry statement said.”
HOW WALL STREET ESCAPED THE CRYPTO MELTDOWN — NYT’s Emily Flitter: “Last November, in the midst of an exuberant cryptocurrency market, analysts at BNP Paribas, a French bank with a Wall Street presence, pulled together a list of 50 stocks they thought were overpriced — including many with strong links to digital assets. They nicknamed this collection the ‘cappuccino basket,’ a nod to the frothiness of the stocks. The bank then spun those stocks into a product that essentially gave its biggest clients — pension funds, hedge funds, the managers of multibillion-dollar family fortunes and other sophisticated investors — an opportunity to bet that the assets would eventually crash.”
CRYPTO ‘FEAR AND GREED’ GAUGE IMPROVES A BIT AFTER SELLOFF — Bloomberg’s Isabelle Lee: “If trader sentiment is any guide, cryptocurrencies could snap back or at least stop selling off after one of their worst quarters in history. The crypto Fear and Greed Index climbed to 19, marking the highest point in two months, according to Arcane Research.”
ICYMI: WHY CONSUMERS’ INFLATION PSYCHOLOGY IS WORRYING THE FED — WSJ’s Nick Timiraos: “Federal Reserve officials have indicated they accept the risks of causing a recession because they are determined to prevent something they view as worse: a change in consumer psychology that could sustain high inflation. Fed Chairman Jerome Powell acknowledged last week that the central bank’s recent turn toward lifting interest rates in 0.75-percentage-point increments — the most aggressive pace since the 1980s — raises the chances of an economic downturn.”
VETERANS OF CARTER-ERA INFLATION WARN THAT BIDEN HAS FEW TOOLS TO TAME PRICES — NYT’s Alan Rappeport on the late-1970s inflation surge: “[T]he political consequences of rising prices could not be escaped: By 1978, Democrats had lost seats in the House and Senate. A year later, Mr. Carter’s Treasury secretary, W. Michael Blumenthal, was ousted in a cabinet shake-up. In 1980, Mr. Carter lost his re-election bid in a landslide as the Federal Reserve, intent on bringing inflation down, raised interest rates so aggressively that it tipped the economy into a painful recession.”
Keith Noreika, the former acting Comptroller of the Currency during the Trump administration, has joined Patomak Global Partners as executive vice president and chairman of the banking supervision and regulation group. Noreika was most recently a partner in Simpson Thacher & Bartlett’s financial institutions regulatory practice.
Amy Liu will become interim president of the Brookings Institution following the departure of Ted Gayer, who is leaving the think tank on July 7 to become president of the Niskanen Center. Liu is currently vice president and director of the Brookings Metro program.
Chastity Murphy is now a senior adviser for financial institutions in the Treasury’s Office of Domestic Finance. She was most recently a senior adviser in the Treasury’s Office of Recovery Programs.
Kristina Littman and Adam Aderton, two top attorneys in the SEC’s Division of Enforcement, have left the agency to join Willkie Farr & Gallagher’s litigation practice as partners, our Sam Sutton reports. Littman, who led the SEC’s crypto unit since 2019, and Aderton, former asset management unit co-chief, are joining the firm’s Washington office to advise white-collar clients on regulatory and enforcement areas around digital assets, private equity and other areas.
A U.S. appeals court on Tuesday struck down an order by the Securities and Exchange Commission that would have allowed some financial firms that are not stock exchanges to have a say in how essential stock market data is priced and disseminated. — Reuters
Week after week of on-the-fly calculations about the intensity of inflation and the likelihood of a recession are preventing markets from finding equilibrium. — Bloomberg’s Lu Wang
THE MERITS OF AN OIL PRICE CAP — Brookings’ David Wessel: The oil price cap “is a creative and perhaps even practical response to two unusual imperatives. The first is well covered by the press: to reduce the flow of oil revenues that are financing Russia’s war machine. The second is not: to prevent an economically catastrophic increase in oil prices because of one element of European sanctions set to take effect at the end of this year.”