Federal Reserve Governor Michael S. Barr said the U.S. labor market is stable and the economy has been growing solidly, but inflation remains too high and has stayed above target for more than five years, warning that if price pressures do not moderate sufficiently, the Federal Reserve should "act decisively to raise rates." He made the remarks in a speech, "Unlocking Opportunities for Workers and Entrepreneurs with a Criminal Record," delivered September 1, 2026, at the Second-Chance Lending Forum, Developing Evidence-Based Policy on Creditworthiness and Criminal History, in Washington, D.C. The views expressed were his own and not necessarily those of his colleagues on the Federal Reserve Board or the Federal Open Market Committee, he noted. The full speech is available at the Federal Reserve's website (https://www.federalreserve.gov/newsevents/speech/barr20260901a.htm).

The Economy and the Policy Outlook

Barr told the forum that the conference sits at the intersection of several policy issues central to the future of the U.S. economy—entrepreneurship, financial inclusion, and technological innovation, including artificial intelligence (AI)—and, critically, how to bolster these forces in ways that support employment, lift living standards, and promote an economy that works for everyone.

The Federal Reserve has a stake in all of these outcomes, he said, a connection rooted in its dual mandate from Congress of maximum employment and price stability. Realizing full employment depends on a labor market in which everyone can participate productively, including those formerly incarcerated or otherwise with a record of navigating the legal system. Perhaps in part because they face obstacles to employment that others do not, many of these individuals pursue entrepreneurship, so extending options to them includes the opportunity to build a business. For them, financial inclusion is essential, and meeting their banking and financial needs is also critical to a healthy economy.

Turning to the broader economy, Barr said the labor market is stable, with relatively low unemployment. The economy has been growing solidly, powered in part by the boom in AI-related business investment and the buildout of AI-related capabilities. Productivity and new business formation have been strong for a number of years, and consumer spending to date has been largely resilient.

But inflation remains too high—and has been for over five years, he said.

Enormous progress was made from inflation's peak of more than 7 percent in 2022 to a bit above 2 percent in 2024, but that progress stalled in 2025, Barr said. A series of shocks—from tariffs and then the conflict in the Middle East, as well as from the rapid AI buildout—pushed progress off course, and core non-housing services inflation remains elevated. With inflation above target for a protracted period, there is a risk of broader price pressures taking hold, a risk Barr said he is watching closely.

At the September FOMC meeting—the committee that sets the federal funds rate and typically gathers about eight times a year—officials will again discuss the outlook for inflation and the policy stance. "If trends in the data give me some confidence that inflation is moderating on a path to 2 percent, then I think we can take a bit more time to assess our policy stance," Barr said. "However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates."

A Career Focus on Financial Inclusion

Barr said his interest in financial inclusion predates his time at the Federal Reserve and has been an important part of his life's work over the past three decades. During his years at the University of Michigan, he worked with several colleagues to launch the Detroit Neighborhood Entrepreneurs Project to help entrepreneurs start and grow their businesses, helping that city bounce back from the dire place it was in a dozen years ago. He has also studied how exclusion from basic banking services can make it harder for people to find stable housing and employment, work documented in his 2012 book No Slack: The Financial Lives of Low-Income Americans (Brookings Institution Press).

His remarks focused on financial well-being and entrepreneurship for those with a criminal or arrest record, encouraging research to enrich knowledge, and how emerging technologies could improve financial access and business opportunities for this group.

The Challenge: Employment and Financial Barriers

Individuals with criminal records experience high employment barriers that substantially limit their access to formal employment and leave them far less likely to be employed than others. Some of these labor market penalties stem from socioeconomic disadvantages associated with having a criminal record, but a large share come from the effects of justice involvement—the incapacitation and human capital loss during incarceration or legal proceedings, and the aversion of employers to hiring those with a record.

Research shows that incarceration leads to persistently lower employment rates and reduced earnings trajectories after release. By one measure, employment propensity falls around 7 to 26 percent after an initial criminal charge and remains persistently low even six years later. A 2018 study by the Prison Policy Initiative found unemployment rates among the formerly incarcerated are nearly five times higher than for the general population.

Research also shows people of color are often disproportionately affected by the existence of criminal records. While there have been large-scale initiatives in recent years to reduce these disparities, such as "ban the box" and "clean slate" laws—state-level reforms that restrict when employers may ask about criminal history and automate record sealing for qualifying offenses, respectively—employment gaps persist and criminal records continue to create lasting employment barriers.

Occupational licensing requirements compound these challenges. Nearly one in four jobs in the United States requires a government-issued occupational license, according to the Council of State Governments Justice Center and Bureau of Labor Statistics data. Several states allow licensing boards to disqualify applicants with criminal records, regardless of whether the offense is related to the occupation or poses any substantive risk to public safety. In addition to the financial consequences for these individuals, such barriers reduce available labor in communities. Some research suggests that reducing occupational licensing burdens may help lower recidivism rates and improve employment outcomes for those with a criminal record.

Beyond employment, these individuals experience multiple dimensions of financial vulnerability. A 2022 Consumer Financial Protection Bureau report, "Justice-Involved Individuals and the Consumer Financial Marketplace," highlights how people with a record face systemic barriers (). Financial obligations and the high cost of essential services—including bail bonds and money transfers—put them at elevated risk of high-cost debt, credit delinquency, and lower credit scores. These credit challenges make it harder to access affordable loans, secure stable housing, and find employment.

The Federal Reserve's 2023–24 Survey of Household Economics and Decisionmaking (SHED), the Fed's annual survey of household financial conditions, showed that those with a record have significantly lower levels of financial well-being, reduced access to credit, and a higher incidence of being unbanked. These gaps persist after accounting for demographic and economic differences, and they widen with longer incarceration and other measures of greater justice system contact, according to a 2026 Finance and Economics Discussion Series paper by Kabir Dasgupta, Jennifer Fernandez, and Alicia Lloro.

As an example, the SHED found that among people with no criminal records, 75 percent report doing okay financially or living comfortably, while for those convicted and once incarcerated the rate is 60 percent doing at least okay financially.

Those with a record, especially those with convictions, are also less connected to the financial system. According to the SHED, those who have a previous conviction are less likely to have a bank account or a credit card; instead, they rely more heavily on alternative financial services like payday loans and pawnshop loans. This disconnection from traditional credit systems appears to stem from limited credit supply rather than a lack of demand: those who experience incarceration are 16 percentage points less confident about approval but are 10 percentage points more likely to have applied for credit in the past year. Barr said this shows they face substantial barriers to the mainstream credit they need. Enhancements to underwriting, like cash flow–based underwriting and the use of alternative financial data, may help expand financial inclusion for a cohort that often has a thin or poor credit history.

Entrepreneurship as a Pathway to Economic Opportunity

People with a record may be an underutilized source of talent and effort, Barr said. Second-chance hiring initiatives could help these individuals find pathways into the labor market, and entrepreneurship is another path to better economic outcomes.

One estimate, from research by Kylie Jiwon Hwang and Damon J. Phillips published in the American Journal of Sociology in 2024, finds that among formerly incarcerated individuals, those who have started their own business could earn 24 percent more in annual earnings than those in traditional employment. The same research finds that entrepreneurship may reduce five-year recidivism relative to unemployment, with a larger decline in reoffending than that associated with traditional paid employment.

Individuals with a record see this opportunity themselves. Research has found that roughly 20 to 30 percent of people with criminal records report being self-employed business owners. According to 2021 research by RAND, approximately 1.1 million small business owners—nearly 4 percent of all small business owners nationally—have a criminal record.

Those who pursue business ownership may have the talent and motivation to succeed but are more likely to be disconnected from the networks and support that other entrepreneurs draw on—mentors from larger businesses, peer entrepreneurs, professional contacts—the very channels that often point people toward available credit and financing options as well as business opportunities.

Lending and Support that Makes Entrepreneurship Possible

The difference between a good idea and a lasting, operational business often boils down to three essentials, Barr said: access to credit, access to business networks and opportunities, and access to missing skills or technical assistance needed to run a business well. Entrepreneurs who have been involved in the criminal justice system face these needs as well, often with fewer opportunities to meet them. Lending is a key input in supporting entrepreneurs with a criminal record, and it is most effective when paired with the training and networks that help a business succeed once its credit needs have been funded. Barr cited a 2021 Small Business Administration evaluation of microloan program outcomes covering fiscal years 2010 through 2019, which found that microloan borrowers reported larger growth and better survival outcomes when intermediary lenders provided technical assistance, training, and help accessing other training sources.

In 2024, the Small Business Administration (SBA) finalized a rule removing many criminal history bars from the SBA's small business loan and loan guarantee programs, a shift that expanded access to the agency's 7(a) and 504 loan channels. It lifted the barrier that had automatically barred applicants on parole or probation from SBA loan programs, citing research on the prevalence and viability of entrepreneurship among people with a record as part of its justification.

For those who might consider setting up a second-chance lending program, dedicated models already exist. The community development financial institution (CDFI)—a Treasury-certified lender focused on serving underserved markets—operating as a lending subsidiary of Texas's Prison Entrepreneurship Program (PEP) was established to provide business loans to entrepreneurs with a record. PEP graduates have launched more than 500 businesses, some generating annual revenues of over $1 million, according to a 2018 impact analysis by the Initiative for a Competitive Inner City. It is one example, Barr said, but it demonstrates that this approach works when lending is paired with structured, accessible support.

Beyond second-chance lending programs, there is a broader small business network supporting credit access, and encouraging those with a record to engage with them may be an option. Small Business Development Centers (SBDCs)—a national network of business advisers and technical assistance providers supported by the SBA—do not lend money directly, but they play a direct role in assisting businesses in connecting with lenders and accessing funding. SBDC counselors help entrepreneurs build the business plans, financial projections, and loan packages that lenders require, and they routinely refer clients to SBA-approved lenders, CDFIs, microlenders, and other financial institutions suited to their credit profile. CDFIs and state, regional, or local economic development organizations often play key roles. Local chambers of commerce support and help build business networks and local relationships that can lead to loan referrals, vendor relationships, and informal credit references, filling the need for access to business networks. These resources, as well as others that provide technical assistance and business support, should be as accessible to entrepreneurs with a record as they are to any small business owner, Barr said.

Along with Texas's PEP, other effective programs, such as multistate organizations, have supported thousands of entrepreneurs in training through mentorship and small business coaching, helping launch businesses. Similarly, other nonprofits—such as Inmates to Entrepreneurs ()—deliver entrepreneurial coaching and business fundamentals with high rates of program completions. The businesses started by graduates from these programs have gone on to hire employees who often include others with a record, extending the effect beyond the original participant.

Looking Forward: Data, Evaluation, and Technology

Barr said he hopes the conference can find ways to make progress on how entrepreneurship programs can better serve people with a record and, therefore, promote a labor market in which everyone can participate productively.

Evidence from programs related to entrepreneurship among those with a record shows it reduces recidivism, he said. More data is needed to show the broader economic effects on individuals and the savings and other benefits to society. Expanded use of pilot programs can help build data on what leads to small business success. Data is also needed that shows the creditworthiness of these individuals and their businesses to support credit underwriting decisions. Long-term program evaluations are needed to assess which entrepreneurship training and development programs are proving most successful. Evaluations can help identify scalable best practices and drive continuous improvement, and rigorous evaluation can also help attract the funding and support needed to expand these programs.

Technology can help support entrepreneurship and improve financial inclusion for all underserved individuals, including those with a record, Barr said. Technological change—most recently including AI—always poses risks and offers opportunities, but technology has expanded the availability of business expertise and knowledge, which could be especially important for those who have been involved in the justice system. While the effect of this technology is yet to be measured, there are some promising examples of how it can improve financial inclusion.

AI-powered cash flow underwriting or alternative financial data underwriting can help consumers access credit and financial products. This is particularly important for those who have been incarcerated and who may have thin credit files or low traditional credit scores. Alternative data can support the provisioning of "second look" initiatives for the second-chance population.

AI has also been used to provide financial advice and to answer common questions that consumers have. This is a useful tool, Barr said, as it can provide information quickly in a "judgement free" environment. It is important, he added, to ensure that advice is provided accurately and complies with consumer and investor protection laws.

In terms of business support, AI can help entrepreneurs with a record both start and manage their firms. AI can act as a writing partner for entrepreneurs drafting business plans—guiding them through a structured template, helping them think through their business's legal structure, developing market analysis, and asking and answering other key questions. AI tools can review industry reports and market data to give entrepreneurs a data-backed snapshot of their market and competitors—work that would otherwise require paid research or expert consultation. Barr cautioned that AI is not a substitute for actually thinking about and implementing a business plan, and it should be thought of as a useful way to augment entrepreneurial skills, rather than a way to replace them.

Many small businesses are using AI to automate tasks, improve customer experience, and identify growth opportunities, Barr noted. AI is effectively serving as a marketer, social media manager, or financial planner for owners who cannot afford to hire separately for each role. If democratized through ready access, affordable pricing, and safety protocols, AI could help bolster small business formation and growth for those with a record and, indeed, for other small businesses throughout the economy.

Conclusion

One of the great promises of technology and innovation is that they help us tackle longstanding challenges and unlock opportunities, Barr said. "Unlocking" is a good word to use in extending opportunity to individuals whose challenges do not end when their imprisonment or other engagement with the legal system is over, he added. Financial inclusion could help them succeed as workers, consumers, and entrepreneurs. Removing hindrances for them can give them the opportunity to make the most of their talents, which will benefit them and help build a stronger U.S. economy.

"Helping those with a record to build a better future for themselves and their loved ones could help to build a better future for all of us," Barr concluded.

The speech drew on a wide body of research, including studies from the National Bureau of Economic Research, the Census Bureau's Center for Economic Studies, the Quarterly Journal of Economics, the Journal of Labor Economics, Econometrica, and the Prison Policy Initiative, among others.