The Center for Popular Democracy’s “Fed Up” campaign inspired a letter from Elizabeth Warren and 11 senators and 111 members of the House of Representatives to increase diversity at the Fed. They complain that:
Currently, 92 percent of regional Bank presidents are white, and not a single president is either African-American or Latino. Moreover, at present 100 percent of voting FOMC participants are white…
Matt Yglesias notes that:
Diversity among decision-makers is not, of course, directly a monetary policy issue. But as the letter points out, monetary policy does have significant consequences for racial disparities in employment. They cite research from the Economic Policy Institute“demonstrating that for every .91 percent reduction in unemployment for whites, black unemployment drops 1.7 percent” meaning that African Americans have more to gain from monetary policy that is more pro-growth and less inflation-averse.
Michigan Representative John Conyers who was one of the main driving forces behind the letter issued a statement observing that “Detroit and cities across the country with high minority populations have some of the highest unemployment rates and will be harmed if the Federal Reserve does not consider our needs when they make key policy decisions.”
The big problem with monetary policy is that its management was intentionally set up to be biased in favor of the big banks rather than ordinary people. When you combine that fact with the tendency for all institutions to be dominated by people well above the median income, you can immediately see how the Fed could neglect the interests of most Americans. The main way that the Fed neglects African Americans is because they are disproportionately earn less than the median income and the Fed doesn’t care about people below the median.
Americans don’t have much of a tradition of class identity and so we don’t pay much attention to class. We do have a long, storied history of obsessing about issues of racial identity. For many years people have pointed out how unfairly the Fed is biased in favor of wealthy Americans without gaining traction. It is remarkable that when the Center for Popular Democracy framed this issue in terms of racial and gender bias, the issue finally took off. It is now part of Hillary Clinton’s economic policy:
The Federal Reserve is a vital institution for our economy and the wellbeing of our middle class, and the American people should have no doubt that the Fed is serving the public interest. That’s why Secretary Clinton believes that the Fed needs to be more representative of America as a whole as well as that commonsense reforms — like getting bankers off the boards of regional Federal Reserve banks — are long overdue.
This is the most obvious way that Fed policy is dominated by the banks. They directly appoint many of the Fed’s top management! The first step towards reducing Wall Street’s power over the US economy should be to take away their control over the Fed. The Fed is the only institution in America that is has responsibility for managing inflation, unemployment, interest rates, and financial stability. No other institution has nearly as much power over the economy, so it is crucial that the Fed’s goals are aligned with ordinary Americans more than with elite banksters.
(For further reading, see past thoughts on Fed policy.)