Barr backs second-chance lending and warns on inflation path
Federal Reserve Governor Michael S. Barr called for expanding credit access and technical support for formerly incarcerated entrepreneurs at a Washington forum on September 1, 2026. Barr also noted that the central bank should raise interest rates if stalled disinflation fails to resume.
Stalled disinflation and credit barriers
Federal Reserve Governor Michael S. Barr highlighted economic hurdles facing justice-involved individuals alongside risks to price stability.
Inflation progress stalled in 2025 following shocks from tariffs, Middle East conflict, and rapid artificial intelligence investment, leaving core non-housing services inflation elevated.
Barr stated that the FOMC should “act decisively to raise rates” if inflation does not moderate toward 2 percent.
Turning to labor inclusion, Barr cited data showing that incarceration lowers employment propensity by 7 to 26 percent, while unemployment for the formerly incarcerated is five times the general rate.
Approximately 1.1 million small business owners—nearly 4 percent nationally—have criminal records.
Removing licensing and capital hurdles
Licensing and lending restrictions compound labor market exclusion.
Nearly one in four American jobs requires an occupational license, with many state boards disqualifying applicants with records.
In 2024, the Small Business Administration lifted automatic loan restrictions for individuals on parole or probation.
Dedicated initiatives like the Texas Prison Entrepreneurship Program have helped launch over 500 businesses.
Barr also emphasized that AI-based cash flow underwriting could expand credit access.
Pragmatic inclusion meets tightening realities
Expanding second-chance credit targets structural labor constraints that limit productive capacity.
Yet threatening rate hikes in the same breath reveals the Federal Reserve's ongoing struggle with persistent service inflation.
Meaningful inclusion will ultimately hinge on commercial bank adoption rather than supervisory rhetoric.