The Federal Reserve: Needed Diversity at a White Male Club

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I hope readers will indulge my obsession with the issue of the next Federal Reserve chair, an upcoming Biden decision as momentous as Supreme Court nominations, given the Fed’s immense discretionary power.

As I’ve noted in previous posts, Chairman Jay Powell and his lobby contend that he deserves reappointment, despite being a Trump appointee and a former private equity mogul, because he’s been good on monetary policy. The counter is that he’s been terrible on financial regulation, economic concentration, and as David Dayen wrote in this piece, also bad on climate.

I’ve also pointed out that if Powell stays, conservative Republicans keep a majority of Fed governors. If he goes, that creates a domino effect leading to more open seats and 4-3 or even 5-2 majorities of pro-regulation Democrats.

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But there is another key dimension that has received almost no coverage. In an administration that has made unprecedented gains on diversity and inclusion, the Fed remains an anachronism. Since taking office in late 2017, Powell has done nothing to improve its dismal record.

The two Fed vice chairs appointed by Trump on the recommendation of Powell and Trump Treasury Secretary Steve Mnuchin are male and pale, Richard Clarida and Randy Quarles. Likewise Powell’s choice for president of the New York Fed, John C. Williams.

The 12 regional Fed Banks have just one Black president, Raphael Bostic in Atlanta, who got the job thanks to Powell’s predecessor, Janet Yellen. Four current regional Fed presidents will soon be retiring, and the next Fed chair will play a key role in recruiting their successors. According to reporting by The New York Times, exactly two of the Fed’s more than 400 staff economists are Black.

Here’s were the aforementioned domino effect comes in. If Biden dispatches Powell, the Fed could go from being one of the worst agencies on race and gender to one of the best.

The leading candidates for the seats that would open up are women or African American, or both. They include former Fed Governor Sarah Bloom Raskin; Michigan State economist Lisa Cook, who is African American; and William Spriggs, the chair of Howard University’s economics department and chief economist of the AFL-CIO, also African American.

The one current Democrat and the sole woman on the Fed Board, Lael Brainard, the leading contender to replace Powell, has an excellent record on inclusion issues. She has championed the Community Reinvestment Act, blocking an effort by Trump’s comptroller of the currency to weaken it, and has spoken out on the need for greater diversity in the economics profession. As chair, she would make greater diversity throughout the Fed system a priority.

If nothing else persuades Biden to replace Powell, presumably with Brainard, the opportunity to align the Fed with Biden’s own superb record on diversity and inclusion should be decisive.

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