Lovecraft and racism is a tough issue - tough because the man himself so heavily evolved in his views over his short life that it's almost unfortunate that he left behind artifacts of his earlier intolerence. In 1919 when the Street was written, HPL was a young, naive budding writer with no real sense of his own literary identity. At that time his politics would be described as anachronistic - he was practically a monarchist.
At that time in American history the KKK was a fairly commonplace social club, President Woodrow Wilson was an avowed racist and public supporter of the Klan, Jim Crow was in full swing, immigration and urban migration was rapidly changing the face of America, and the rise of the USSR with its early goal of global Communism was scaring the crap out of conservative white America. Stories like the Street merely represent HPL as a product of his time. It has to be taken in context with a film like Birth of a Nation. Let's not forget that in 1919 the Civil Was was still a recent memory; the children of Civil War vets were running the country's biggest institutions.
The HPL of 1919 WAS NOT the HPL of 1936. That HPL was a socialist and a man who had drastically softened his views. His own personal views appear to have followed the trend of a large number of Americans who began their lives with a racist upbringing. I'd say the man was probably slighly MORE racist than the average New Englander, but a heckuva lot LESS racist than the average Southerner.
Now here is where I'm going to commit blashphemy. I actually kinda LIKE the Street. Not BECAUSE of it's racism (I'm about as left-leaning as a man can get and my politics reflect that and in the interest of full disclosure I am 1/8th African-American) but IN SPITE of it. I like it because it shows HPL's evolving trend as a writer. I think it's really the first time he finds a bit of his own voice in his genre. Instead of being Poe or Dunsany, he's turned the tool of the weird tale in the direction of addressing what he views to be a very contemporary political issue. For that reason, I think the story is an important artifact of his fiction, regardless of its distasteful sentiment. Sadly, I think it gets too easily passed over in Lovecraft scholarship for that reason.
I would challenge the notion that HPL was a 'socialist'. He was a New Deal Democrat, and while maybe the closest the United States has got to a 'socialist' government, but there are also critiques of New Deal policies who argued that it shared similarities with fascism, particularly Mussolini-type corporatism.
Lovecraft wrote that he favored:
". . . a kind of fascism which may, whilst helping the dangerous masses at the expense of the needlessly rich, nevertheless preserves the essentials of traditional civilization and leaves political power in the hands of a small and cultivated (though not over-rich) governing class largely hereditary but subject to gradual increase as other individuals rise to its cultural level." (Selected Letters, vol. IV, p. 93.)
A couple of his stories talk about the future (or past) societies as being socialist-fascist. Lovecraft seemed to fear that socialism and communism would, rather then protect higher, traditional culture, lead to a mass proletariatization of society, a leveling down rather then a bringing up of the masses.
If HPL lived longer, I could see him rejecting outright fascism following WW2 (he was, after all, a patriot). I could see him supporting the right-wing of the democratic party (the anti-civil rights/dixicrat wing) and being in favor of intervention in Vietnam. These positions would have been mainstream and 'patriotic' those days, it's only now that the civil rights battle has been won and we get to look back at those backwards times to say how bad it was.