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Illustration: Aïda Amer/Axios

The Fed is ditching the "take away the punch bowl" mentality, which economists say choked employment opportunity for low-income, Black and Latino workers.

Why it matters: The central bank says the shift will help "foster economic conditions that benefit everyone," and be more inclusive for the communities that aren't lifted when the economy first begins to recover.

What they're saying: "When a central bank 'takes away the punch bowl,' what that means is they are tamping down on the recovery — just as marginalized communities are seeing benefits," Laura Veldkamp, economics professor at Columbia Business School, told Axios.

Catch up quick: The Fed no longer thinks there’s a trade-off between low levels of unemployment and inflation, a historic pivot for the central bank.

  • The Fed left "potential employment gains on the table" when they started to raise rates between 2015 and 2018 in an attempt to head off inflation that never manifested, the Peterson Institute's Adam Posen said during a media call on Thursday.

The backdrop: The announcement is the culmination of the Fed's nearly two-year long review of its policies and a series of events with community leaders who gave feedback about the Fed's policies.

  • Maurice Jones, CEO of Local Initiatives Support Corporation, told officials at a Fed Listens event last year that “focusing on prolonging the growth of the labor market and not being so wedded to 2% inflation” is most important.
  • "The longer we can get growth in the labor market, the more likely the folks that we serve and low-wealth communities will find a viable pathway to living wage jobs and careers," Jones told Axios, following Powell's speech.

The big picture: The renewed emphasis on more "inclusive" monetary policy goals come as the Fed faces pressure to tackle exacerbating racial inequality.

  • "This change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities," Powell said.

What to watch: It will be a while before the Fed's shift plays out in practice. The August jobs report due out next week is expected to show the overall unemployment rate tick down a mere 0.2 percentage points, per FactSet. That still leaves the jobless rate at the worst level in over 10 years.

Between the lines: The most immediate impact is reassurance to market participants that the low interest rate environment will be here for longer than previously thought.

  • Rates on mortgages, credit cards and auto loans will remain low — though the cost to borrow is less meaningful for lower-income communities that often don't have access to these products in the first place, Jones points out.
  • Longer periods of low rates will also up the appetite for stocks and bonds, as one trader told WSJ, possibly exacerbating the divide between those who own stocks and benefit from the market's rebound and those who don't. (As CNBC's Jim Cramer said after Powell's speech: "Powell is on the side of the bulls.")
  • "We are certainly mindful that higher prices for essential items, such as food, gasoline, and shelter, add to the burdens faced by many families, especially those struggling with lost jobs and incomes," Powell said.

The bottom line: Powell's Fed has said it's willing to let the economy run hot, a boon for communities that need low unemployment rates to feel the effects of an economic recovery.

Go deeper

The biggest pandemic labor market drags

Data: U.S. Bureau of Labor Statistics; Chart: Naema Ahmed/Axios

State economies most exposed to industries that have been slow to bounce back from the pandemic shutdown — like tourism — are seeing the worst labor market pain.

Why it matters: Even states that have the coronavirus more under control than others are taking harder economic hits, thanks to their dependence on sectors slammed by the pandemic.

Nov 22, 2020 - Politics & Policy

Trump campaign says Sidney Powell isn't a member of its legal team

Photo: Drew Angerer/Getty Images

President Trump's campaign said in a Sunday statement that Sidney Powell is neither a member of its legal team nor a lawyer for Trump in his personal capacity.

Why it matters: Powell was a part of the campaign's wild, conspiratorial Thursday press conference and baselessly floated unfounded conspiracy theories that included a claim that President-elect Biden won the 2020 presidential election thanks to "communist money" from the Venezuelan regime.

Biden's Day 1 challenges: Systemic racism

Photo illustration: Sarah Grillo/Axios. Photo: Kirsty O'Connor (PA Images)/Getty Images

Advocates are pushing President-elect Biden to tackle systemic racism with a Day 1 agenda that includes ending the detention of migrant children and expanding DACA, announcing a Justice Department investigation of rogue police departments and returning some public lands to Indigenous tribes.

Why it matters: Biden has said the fight against systemic racism will be one of the top goals of his presidency — but the expectations may be so high that he won't be able to meet them.