Interest Rates Go Down, Unemployment Remains Worrisome
The Federal Reserve works to improve economic conditions in the United States. In response to the pandemic’s decimation of jobs in multiple sectors, the Reserve is maintaining low interest rates. This policy will support financially-susceptible individuals, but achieving financial normalcy will be admittedly strenuous for the Reserve as businesses that rely on human interaction continue to suffer.
The Fall of Interest Rates
Interest rates are proportions of loans paid to loaners, who are typically financial institutions. The federal government lowers interest rates to stimulate borrowing since low financing costs are more attractive to loanees. This expands individuals’ and businesses’ buying power, and when Americans can borrow money more cheaply, the economy becomes stronger.
Federal Reserve Chairman Jerome Powell explained in an interview with the National Public Radio (NPR) on September 4 that the interest rate, which has remained near zero since March of this year, will likely stagnate for years. Powell remarked that low interest rates support low-income individuals who are “very vulnerable to an extended period of unemployment” (2020). He then shifted his focus to COVID-19 containment concerns: better containment could come from preventing evictions, and in turn, preventing homelessness, overcrowding, and other unsafe living conditions. As a result, the country could see “significant macroeconomic effects over time” (Powell 2020). Powell’s reference of such workers as vulnerable to COVID-19 highlights the urgency of federal and fiscal policies. Powell elaborated, stating that “enhanced unemployment insurance and aid for small businesses,” among other policies, would be implemented to safeguard Americans (2020).
The American Job Crisis
Withdrawing economic support and increasing interest rates too soon would threaten the personal and economic safety of Americans, and therefore will only be done once the job situation is back to normal. Richard Clarida, Vice Chairman of the Federal Reserve, claimed in an interview with CNBC that despite the “enormous range of uncertainty,” the economy could go back to pre-pandemic levels, “perhaps towards the end of 2021” (2020). Still, other professionals have estimated longer periods of instability. Zillow economist Matthew Speakman predicted “more downward rate movements” (2020).
Data from the U.S. Bureau of Labor Statistics counted about 15.5 million sales workers, 13.8 million food service workers, 13.1 million transportation workers, and 9.4 million production workers in 2019. These fields combined represent approximately 32% of last year’s labor force, as well as some of the fields that have been hit the hardest by the pandemic. The Bureau conducted another study that estimated 16.78 million Americans worked in the hospitality industry — another sector decimated by COVID-19 — last year. A further Brookings study found that around 37.21 million employees (23.9% of total workers) have been affected by COVID-19 based on 2018 employment data. Unfortunately, until a vaccine can safely circulate, it is likely that not all of these jobs will be restored.
Recent statistics show improvement, since the unemployment rate fell to 8.4 percent in August, and the number of unemployed Americans has dropped from 22 million to 11 million since the peak of the pandemic. However, Powell remarked that the unrestored jobs will take longer to fully restore as certain parts of the economy are “harder to recover” than others (2020). Unfortunately, the pandemic disproportionately eliminated low-paying jobs, affecting those who, even before March 2020, identified as low-income. In consequence, lack of action may exacerbate the wealth gaps that have reached record-high levels in recent years. Low interest rates can strengthen the economy as the working class gets back on its feet, and maintaining the size of the workforce will also guarantee taxes, which are critical to strong economies.
The Economy’s Response
Low interest rates have already fueled the housing market, with some cities experiencing home price jumps greater than 13%. While the housing shortage may prevent limitless economic improvement in this sector, low interest rates are providing the cushioning America’s working class needs. Powell, for one, is optimistic: “However long it takes, we’re going to be there” (2020).
