US Bifurcated ꟷ Economic backdrop deepens racial disparities

Black and Hispanic households have experienced more inflation than other groups since the reopening of the economy from the pandemic lockdowns. Although there’ve been many phases of high inflation, some have disproportionately hurt these minority groups, such as the jump in energy prices following Russia’s invasion of Ukraine, with the ensuing surge in rental inflation further setting them back.

• Positive wealth effects have become an important tailwind for aggregate consumption growth this year. However, wealth disparities have limited the boost to black and Hispanic consumers.
• The spending wherewithal of black and Hispanic consumers is highly sensitive to labor market conditions. An all-too-familiar story is unfolding across racial groups in a cooling labor market, underscoring the Federal Reserve’s dilemma ahead of its final interest rate decision of the year.
• Racial disparities have long existed in earnings, employment, and wealth, but the legacy of high post-pandemic inflation, the concentrated gains in household wealth, and a slowing labor market are exacerbating these inequalities.