Cultura y noticias hispanas del Valle del Hudson
Changes in Interest Rates and How They Affect People by Race and Gender
Por Cristina Ramírez
February 2026You’ve probably heard of Jerome Powell, Chair of the Federal Reserve (the Fed), the public debates over when to raise or lower interest rates, and the political tensions that have emerged with President Trump. But beyond the headlines, why do interest rates go up or down? What exactly is monetary policy? How does it affect our everyday lives? And, most importantly, does it affect everyone in the same way?
To better understand these issues, La Voz spoke with Mexican economist Laura Montiel Orozco, a specialist in monetary and financial economics. She holds a PhD in economics and is a professor at the Universidad Autónoma Metropolitana–Azcapotzalco in Mexico City, and completed her doctoral research at the Levy Institute of Bard College. Montiel Orozco suggests thinking about the economy as if it were a patient whose health must be kept stable. When everything is going well, no medication is needed. But, as with any body, sooner or later imbalances appear.
To assess the economy’s health, economists look at indicators such as GDP and inflation. Gross Domestic Product (GDP) measures the total value of the goods and services a country produces over a given period of time. If GDP grows, the economy is expanding; if it falls for several consecutive quarters, it is considered a recession. Inflation is the general increase in prices. A moderate level of inflation is usually seen as normal, but when prices rise too quickly, the purchasing power of wages declines.
So, if GDP falls or inflation rises too much, it is a sign that something is not working properly. The economy moves through cycles of boom and bust, and that is when the Federal Reserve steps in.
When inflation rises too much, the Fed raises interest rates. This makes credits more expensive, reduces consumption and investment, and helps slow down price increases. When the economy slows or falls into a recession, the Fed lowers interest rates to encourage spending and investment.
In practice, this translates into very concrete decisions: a rate hike can make a mortgage, a credit card balance, or a student loan more expensive; a rate cut, on the other hand, can make it easier for a family to buy a home or for a small business to go for it and expand.
Dr. Montiel explained that monetary policy is usually analyzed as if it affected everyone equally, when in reality some households are hit harder.
In her study, recently presented at Bard College, Professor Puig observed that when the central bank raises interest rates and families spend less, Black households—especially those headed by women—cut their consumption proportionally more than white households. For example, Black households reduce their spending on durable goods (cars, appliances, furniture) by 7.5%, while in white households with dual-income couples, the decline is close to 5%.
These numbers may seem abstract, but they have very real consequences: many families must devote a large part of their income to mortgage payments and prioritize essential expenses, putting aside “luxury goods” such as movie tickets, restaurant meals, gifts, investment in education, or cultural activities. It’s also harder to afford a new car, fix a refrigerator, or invest in home improvements.
Puig analyzed several possible causes of this inequality: income level, income composition, and debt burden. These variables do not fully explain the difference. However, there is one key factor: family structure.
The study shows that Black households are less likely to be headed by married couples. This means that during interest rate changes, they lack the so-called “spousal insurance,” that is, the economic backup of a second income in the face of a crisis. This perpetuates inequality, especially in households led by Black women or single mothers.
As Montiel summarizes: “This paper is the first to estimate gender and race differences in household consumption responses to monetary policy shocks using this methodology over a long period of time. It also explains these responses through impacts on the labor market and income outcomes, such as spousal insurance.”
This finding becomes especially relevant given the current pressure on the Fed to cut interest rates. As tempting as it may seem for our wallets, lowering them too quickly—especially under political pressure—can be risky. When rates fall, credit becomes cheaper, and consumers and businesses tend to spend and invest more, with effects that are visible months or even years later.
This happened in the U.S. during the 1970s, when the government pressured the Fed; inflation returned even stronger, and it then became necessary to raise rates abruptly, causing severe recessions. That’s why the Fed is independent: it can make unpopular but necessary decisions based on data rather than short-term political interests, preventing problems like those of the 1970s from happening again. According to the BBC, central bank independence emerged after those inflationary crises.
Many countries reformed their monetary systems, and studies show that when central banks act without political pressure, inflation tends to be lower and more stable. On the other hand, if the Fed loses its independence, investors may lose confidence, which raises the cost of credit, slows investment and savings, encourages speculation, and affects both economic stability and the United States’ reputation in global markets.
Meanwhile, from home, the best we can do is take care of our finances. Dr. Montiel advises: save and invest carefully, choose fixed-rate loans—or amortization plans if rates are variable—diversify investments, and keep a clear record of income and expenses. These are simple but effective strategies that help us stay prepared for sudden market swings.
At the same time, monetary policymakers must ensure that economic stability does not deepen inequality. The lesson is simple: be prepared, act carefully, and remember that economic stability is built with patience, strategy… and a bit of personal foresight.back to top
COPYRIGHT 2026
La Voz, Cultura y noticias hispanas del Valle de Hudson
To assess the economy’s health, economists look at indicators such as GDP and inflation. Gross Domestic Product (GDP) measures the total value of the goods and services a country produces over a given period of time. If GDP grows, the economy is expanding; if it falls for several consecutive quarters, it is considered a recession. Inflation is the general increase in prices. A moderate level of inflation is usually seen as normal, but when prices rise too quickly, the purchasing power of wages declines.
So, if GDP falls or inflation rises too much, it is a sign that something is not working properly. The economy moves through cycles of boom and bust, and that is when the Federal Reserve steps in.
The Federal Reserve and Monetary Policy
Continuing with the medical analogy, economists are the healthcare team. In the United States, that role is played by the Federal Reserve, the country’s central bank, which acts like the primary care doctor prescribing the treatment: monetary policy. Monetary policy is the set of decisions the Fed makes to influence the economy, mainly through interest rates. These rates determine how much it costs to borrow money.When inflation rises too much, the Fed raises interest rates. This makes credits more expensive, reduces consumption and investment, and helps slow down price increases. When the economy slows or falls into a recession, the Fed lowers interest rates to encourage spending and investment.
In practice, this translates into very concrete decisions: a rate hike can make a mortgage, a credit card balance, or a student loan more expensive; a rate cut, on the other hand, can make it easier for a family to buy a home or for a small business to go for it and expand.
Dr. Montiel explained that monetary policy is usually analyzed as if it affected everyone equally, when in reality some households are hit harder.
Does It Affect Everyone the Same Way?
Spanish professor Ana Puig, in her study “Monetary Policy Transmission to Consumption: Inequalities by Gender and Race” analyzed how the Federal Reserve’s decisions between 1988 and 2019 affected household consumption in the United States, and found that monetary policy has a stronger impact on Black people and women.In her study, recently presented at Bard College, Professor Puig observed that when the central bank raises interest rates and families spend less, Black households—especially those headed by women—cut their consumption proportionally more than white households. For example, Black households reduce their spending on durable goods (cars, appliances, furniture) by 7.5%, while in white households with dual-income couples, the decline is close to 5%.
These numbers may seem abstract, but they have very real consequences: many families must devote a large part of their income to mortgage payments and prioritize essential expenses, putting aside “luxury goods” such as movie tickets, restaurant meals, gifts, investment in education, or cultural activities. It’s also harder to afford a new car, fix a refrigerator, or invest in home improvements.
Puig analyzed several possible causes of this inequality: income level, income composition, and debt burden. These variables do not fully explain the difference. However, there is one key factor: family structure.
The study shows that Black households are less likely to be headed by married couples. This means that during interest rate changes, they lack the so-called “spousal insurance,” that is, the economic backup of a second income in the face of a crisis. This perpetuates inequality, especially in households led by Black women or single mothers.
As Montiel summarizes: “This paper is the first to estimate gender and race differences in household consumption responses to monetary policy shocks using this methodology over a long period of time. It also explains these responses through impacts on the labor market and income outcomes, such as spousal insurance.”
When Cutting Rates Isn’t Enough
The research shows that when the Fed raises interest rates, family spending clearly drops, whereas lowering them does not lead to a proportional increase in consumption. During crises, a contractionary monetary policy widens inequality, and these gaps are not always reduced during expansionary cycles.This finding becomes especially relevant given the current pressure on the Fed to cut interest rates. As tempting as it may seem for our wallets, lowering them too quickly—especially under political pressure—can be risky. When rates fall, credit becomes cheaper, and consumers and businesses tend to spend and invest more, with effects that are visible months or even years later.
This happened in the U.S. during the 1970s, when the government pressured the Fed; inflation returned even stronger, and it then became necessary to raise rates abruptly, causing severe recessions. That’s why the Fed is independent: it can make unpopular but necessary decisions based on data rather than short-term political interests, preventing problems like those of the 1970s from happening again. According to the BBC, central bank independence emerged after those inflationary crises.
Many countries reformed their monetary systems, and studies show that when central banks act without political pressure, inflation tends to be lower and more stable. On the other hand, if the Fed loses its independence, investors may lose confidence, which raises the cost of credit, slows investment and savings, encourages speculation, and affects both economic stability and the United States’ reputation in global markets.
Meanwhile, from home, the best we can do is take care of our finances. Dr. Montiel advises: save and invest carefully, choose fixed-rate loans—or amortization plans if rates are variable—diversify investments, and keep a clear record of income and expenses. These are simple but effective strategies that help us stay prepared for sudden market swings.
At the same time, monetary policymakers must ensure that economic stability does not deepen inequality. The lesson is simple: be prepared, act carefully, and remember that economic stability is built with patience, strategy… and a bit of personal foresight.back to top
COPYRIGHT 2026
La Voz, Cultura y noticias hispanas del Valle de Hudson
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