Talking the Talk

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How Politicians and Activists Are Holding the Federal Reserve Bank Accountable for Its Diversity Efforts 

More and more, women across the world are serving in leadership positions in business and politics, and even as leaders of countries. Indeed, Angela Merkel is the chancellor of Germany, Theresa May recently became the prime minister of England, and Hillary Clinton is vying to become the first female president of the United States. But when it comes to the Federal Reserve Bank (FRB), the scales of leadership are tilted decidedly toward men.

The Federal Reserve is the central bank of the United States and is tasked with controlling the country’s interest rates and money supply, overseeing the banking system, and setting monetary policy that affects the U.S. and other economies.

Of the 12 regional presidents of the FRB, 10 are men (nine are white, and one is of South Asian descent), and only two are women. Moreover, Jordan Haedtler — a campaign manager for Fed Up, a national coalition dedicated to economic justice at the Center for Popular Democracy, a research center in Washington, D.C. — says that no African American or Latino has ever served as a regional president.

Experts say that the lack of female and minority presidents at the FRB is negatively affecting U.S. economic policy and contributing to the lack of progress made by women and minorities, exemplified by the high unemployment rate of minorities.

Ironically, the Federal Reserve’s Diversity and Inclusion Web page touts progress in this area. While it claims a commitment to “fostering an inclusive and diverse workforce” and states that “decision making and ultimately service to the public are borne from diverse perspectives,” the FRB’s actions don’t align with its rhetoric.

In fact, on May 12, 2016, a majority of House Democrats joined by 11 Democratic senators — spearheaded by Sen. Elizabeth Warren and Rep. John Conyers — wrote Federal Reserve Chair Janet Yellen a detailed letter urging her to do something about the lack of diversity at the helm of the regional FRBs. The letter emphasized that this issue undercuts the bank’s efforts to represent a wide swath of the American public.

The letter also noted that when the voices of “women, African Americans, and Latinos are excluded from key discussions, their interests are too often neglected.”

In her testimony to the U.S. House of Representatives in July 2016, Yellen affirmed her commitment to introduce a more diverse leadership team at the FRB. “I would very much like to see greater diversity at that level, too,” she said. “And it’s a goal that I hope we will make progress on in the coming years.”

Yellen went further, emphasizing the FRB’s focus on recruiting diverse candidates for presidential positions.

“We insist that searches for these presidencies are national, that the candidate pool is diverse, and that due consideration is given to diversity as an important goal,” she said. Moreover, she stated that the Federal Reserve would request public suggestions for potential candidates when the next regional presidency position becomes available. Currently, there are no ongoing searches for presidents.

However, not everyone agrees that the FRB is making progress toward diversifying its leadership. Haedtler says that a stultifying status quo reigns at the Federal Reserve, which contributes to appointing and retaining white men until they reach the mandatory retirement age of 65; however, presidents appointed after age 55 can serve until they are 75, pending a decision from the board of directors.

Each president serves a five-year term, and most are automatically reappointed. “All the evidence suggests that this is pro forma, and presidents serve as long as they want and are only replaced when they voluntarily resign,” Haedtler says.

Furthermore, he notes that there’s little transparency around who is named president, including why a person was appointed and whether any minority or female candidates were even considered.

With Atlanta Federal Reserve Bank President Dennis Lockhart facing mandatory retirement in 2017, Haedtler says that the appointment to fill his seat will serve as a litmus test to determine whether diversity is making any inroads.

“Given the demographics of the district he represents and all the recent attention and pressure on Janet Yellen to address these issues, it will be interesting to see if a black candidate is considered,” he says.

Lockhart’s district — the Sixth Federal Reserve District — comprises the southern states of Alabama, Florida, Georgia, and parts of Louisiana, Mississippi, and Tennessee and has a very large minority population. Indeed, the 2010 U.S. Census reports that 55 percent of the 38.9 million African Americans living in the U.S. reside in the South.

Some of the FRB’s resistance to change and its dependence on the status quo stem from its charter. It operates as a “quasi-private institution and is owned by the commercial banks,” Haedtler says, adding that if Congress wanted to ensure diversity at the Federal Reserve, “it would make [it] a truly public institution.”

“By having it ruled by public representation, you’d change the makeup,” he adds.

For now, the FRB continues to rule on and set monetary policy that affects every working person’s life and pocketbook without truly representing the diverse populace it serves. “When the Fed raises interest rates, it does so with the deliberate intention of slowing down economic activity,” says Haedtler. “It affects peoples’ ability to get jobs.”

Another factor in raising interest rates is concern over rising inflation. “But right now,” Haedtler says, “inflation is well below Federal Reserve targets.”

Having more female and minority presidents would strengthen the institution’s resolve to achieve its full employment mandate in the U.S., which so far it hasn’t lived up to.

When the recession was at its peak in 2010, Haedtler says that Minnesota Federal Reserve Bank President Narayana Kocherlakota acknowledged that the FRB never discussed labor market conditions for African American workers, whose unemployment rate was spiking well beyond that of whites. This disparity continues today with unemployment among African Americans at 8.8 percent — more than double the rate for whites; furthermore, Hispanics average an unemployment rate of 6.6 percent.

Not everyone agrees that increased diversity at the FRB will translate to improvement or more responsiveness to working-class people, including minorities. Roger Lowenstein, author of America’s Bank: The Epic Struggle to Create the Federal Reserve, doesn’t think diversity is the most important qualification when it comes to leadership at the FRB.

“Banking expertise and a commitment to making the banking system safe and sound and well-financed should be the sole criterion,” Lowenstein says, adding that regional presidents tend to be white men because they constitute the vast majority of bankers and financial experts.

However, in the congressional letter addressed to Yellen at the Federal Reserve, Sen. Warren argued for the need to reform and update the institution’s process for naming regional presidents. Additionally, Haedtler continues to urge Congress to require more transparency around who is selected, as well as how and why they were nominated.

The terms of three FRB directors expire at the end of this year, opening the door for change and giving Federal Reserve leaders the opportunity — should they choose to seize it — to be more responsive to working-class people, minorities, and women.●

Gary M. Stern is a contributing writer for INSIGHT Into Diversity.