When the Federal Reserve moves to raise or lower interest rates, it affects nearly every corner of the economy at once, not just one group or another. Fed leaders refer to their tools as blunt instruments.

Why it matters: But it's becoming clearer that the Fed does has surprisingly powerful effects on whether people historically more likely to be on the fringes of the job market, including Black Americans and those with less education, prosper.

• Much as central bankers might like to make policy decisions at a technocratic remove, their policies ultimately affect different groups of real people differently — part of why this moment for the Fed is politically fraught.

A newly published paper shared exclusively with Axios makes clear just how dramatic the difference can be. It shows that when the Fed's monetary policy secures a tight labor market, the biggest benefits flow to those with historic disadvantages.

By the numbers: In tight local labor markets, a cut in the Fed's target interest rate was followed by Black employment growth over the ensuing two years — to the tune of 0.91 percentage points more than in loose labor markets. The number was 0.39 percentage points for workers without a high school degree.

• The data is based on an analysis of 895 local labor markets in the U.S. from 1990 to 2019 by economists Nittai K. Bergman (Tel Aviv University), David Matsa (Northwestern), and Michael Weber (University of Chicago).

What they're saying: "Running the economy hotter does allow disenfranchised workers to find employment," said Weber.

That aligns with the experience of 2019 when the Fed cut interest rates amid an already-low jobless rate — and the gap between the Black unemployment rate and the white unemployment rate fell to its lowest level on record. It was 1.9 percentage points in August 2019.

• "This was a very desirable feature," of the pre-pandemic economy, Fed chair Jerome Powell said at a hearing this week.
• However, the gap has widened substantially since the pandemic, standing at 3.9 percentage points in December, even as the overall labor market has tightened up.

But, but, but: Neither the 2019 experience nor the new working paper says much about the flip side of tight labor markets, which is high inflation — not much of an issue in 2019. People with lower incomes frequently feel the bite of higher prices more intensely.

• With average wages rising more slowly than consumer prices, it's not clear if the tight labor market of 2022 will, on net, leave lower-income and disadvantaged groups better off or worse.

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