Fed under pressure to reform system, goals

Activists press for diversity on boards

WASHINGTON: The US Federal Reserve has two guiding goals when designing monetary policy: maximum employment and stable inflation.

But as the country’s central bankers converge for their annual symposium in Jackson Hole, Wyoming this week, they are under increasing pressure to reform their own system and goals to better reflect the diversity of America and its incomes.

At this year’s flagship economic policy conference, from August 25 to 27, US policymakers will confer not only with their counterparts from around the world but also host a meeting on Thursday with a group calling for a radical overhaul of the Fed.

Fed Up, a network of community organisations and labour unions that wants a more diverse, transparent and income-inequality aware central bank, will meet with Kansas City Fed president Esther George.

It may be one reason why the organisers changed the dress code for the evening, usually a suited and booted affair, to casual attire.

So far three other Fed policymakers, New York’s William Dudley, Cleveland’s Loretta Mester and Boston’s Eric Rosengren, are also scheduled to show up.

A Fed spokesman said Federal Reserve governor Lael Brainard from the Washington-based Board of Governors also plans to attend the meeting.

The activists will look to build on their proposals, put forward in conjunction with former top Fed policy adviser Andrew Levin, to make the Fed’s 12 regional banks government entities. The Fed is the world’s only major central bank that is not fully public.

The group has recently been joined by powerful allies in Congress in forcing racial, gender and income inequality up the Fed’s agenda.

Democratic presidential candidate Hillary Clinton has come out in favour of restricting the financial world’s influence on regional Fed boards.

In May, 127 US lawmakers including Senator Elizabeth Warren and former Democratic presidential candidate Bernie Sanders sent a letter to Fed chairwoman Janet Yellen urging more diversity among its ranks in order to “reflect and represent the interests of our diverse country.”

Currently 11 of the 12 regional Fed presidents are white, 10 are male, and none are black or Latino.

At the board level, the highest echelons of the Fed, Yellen is the first woman chair in the central bank’s 103-year history.

There are indications that the steady drumbeat of pressure is having some effect on areas on which the Fed does have some control.

“I believe that diversity is extremely important in all parts of the Federal Reserve,” Yellen told Congress in June under sustained scrutiny from lawmakers about the Fed’s performance.

Minorities now make up 24% of regional Fed bank boards, up from 16% in 2010, while 46% of all directors are either nonwhite or a woman.

Yellen, who has not been shy in speaking on income inequality, has also noted that rising inequality could curb US economic growth.

And for a Fed not used to addressing distributional issues associated with monetary policy, such considerations are now seeping into policy discussions.

“The unemployment rate for African Americans and for Hispanics stayed above the rate for whites...” the Fed noted in minutes released last week from its policy meeting in July.

Or as Yellen put it to Congress in June, “We’re certainly very focused on...wanting to promote stronger job markets with gains to all groups.”