Millennials Are Not an 'Entitled Generation'

It may be inconceivable to the moneyed class, but there are in fact very good reasons not to raise interest rates quickly or dramatically. Yes, inflation is worryingly high, Ukraine is burning and Covid-19 still threatens to upend supply chains. However, the reality many Americans face — if not low-income and middle-class workers across the globe — is quite different from what the stock market and go-to suite of economic indicators tell us.

Millions of Americans haven’t yet recovered from the Covid-19 recession. Black unemployment, at 6.6%, remains stubbornly higher than the overall rate of 3.8%, and is double the figure for 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. Just 9% of low earners say their pay had kept up with the cost of living, even as wage growth broadly accelerates.

Young savers, meanwhile, were hit disproportionately by the pandemic, with 32% of millennials and 23% of Gen-Z owing more credit card debt than they have in emergency funds. That compares with 15% for Baby Boomers, holders of half the nation’s wealth, whose net worth rose by $15.5 trillion, or 28%, since the first quarter of 2020. The figure climbed 65% for Gen X.

It’s against this backdrop that recent comments by BlackRock Inc. co-founder Rob Kapito, who earned more than $24 million in 2020, hit a nerve. “For the first time, this generation is going to go into a store and not be able to get what they want,” he said. “And we have a very entitled generation that has never had to sacrifice.” (It’s unclear whether he was referring to Gen-Z or millennials.)

Kapito isn’t wrong to point out the broader trend of what he called “scarcity inflation,” triggered by a shortage of everything from workers and houses to oil and fertilizer. It would seem, though, that the impact has little to do with entitlement. If anything, the young deserve a more secure future than the hand they’ve been dealt — in 2008 by the excessive risk-taking of a rapacious horde of financiers and in 2020 by the plain bad luck of the Covid-19 outbreak.

Where do higher borrowing costs factor in? The Federal Reserve — which raised interest rates by a quarter point this month — is seeking to tamp down runaway price increases. Making it more expensive to spend money could help rein those in, a welcome reprieve as inflation hits a four-decade high. But rate hikes won’t solve everything, particularly supply chain snarls and the surging price of oil, says William Spriggs, chief economist at the AFL-CIO. “It doesn’t address the issue that’s causing inflation,” he told NPR earlier this month. “This is a series of supply shocks … But tomorrow, the price of oil is not going to come down because the Fed raised interest rates.”

Indeed, higher rates could have a series of negative consequences that would hit the young and people of color particularly hard. One would be a slower pace of hiring — an ominous prospect for corners of the workforce still struggling to land well-paid, full-time employment. Despite companies’ complaints about labor shortages and the historically high rates of workers quitting, those in service sectors such as retail and dining — not to mention health-care — still face unpredictable schedules without stable benefits. Elevated interest rates also make it more expensive to buy a house. Black borrowers already pay higher mortgage rates than whites, and had the lowest approval rate by lenders nationwide for refinancing in 2020 compared with Whites, Hispanics and Asians.

Ultimately, interest rates are a “famously broad and blunt” tool — in the words of Fed Chair Jerome Powell — for the finely tuned task of getting cash to the corners of the economy that need it most. “Eliminating inequality and racial discrimination and racial disparities and that kind of thing is really something that fiscal policy and other policies … are better at focusing on,” he said in a press conference last September.

You fight with the army you’ve got — and if that’s the case, best to think about the economy holistically before charging ahead with 50 basis point hikes, as markets increasingly expect. It doesn’t take a particularly brave bond fund manager to call for ever-higher, 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 up a 401(k), the urgency is a lot less obvious.

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