A 'striking lack of diversity' at the Fed distorts economic policy in ways most people don't consider
- The Federal Reserve remains a deeply white-male and bank-centric institution despite ex-Fed Chair Janet Yellen's efforts to boost diversity; she was the central bank's first female leader in over 100 years.
- A new report from Fed Up finds the board of directors of the Fed's 12 regional district banks "remains disproportionately white, male, and from corporate and financial backgrounds."
- Of 107 current directors, 78% come from banking or business backgrounds, 77% are white and 67% are male, the report found.
- This lack of diversity skews economic policy toward the interests of wealthier white males, Fed Up says.
The Federal Reserve, despite some strides under the leadership of its former chair Janet Yellen, remains a white-male dominated and bank-centric institution.
Yellen became the Fed's first female chair in 2014, after 100 years of male leadership, and President Donald Trump decided to replace her with Fed governor and former private equity executive Jerome Powell.
Last year, Raphael Bostic became the first black president of one of the Fed's 12 regional district banks when he took the helm of the Atlanta Fed.
In a new report from the liberal-leaning Fed Up, a coalition of community groups advocating for continued low interest rates from the Fed with a view to helping the country's poorer families enjoy some of the benefits of the recovery, the group says a lot of work remains to be done despite recent progress on diversity under Yellen's tenure.
"The composition of the 2018 Board of Directors of the twelve Federal Reserve Regional Banks remains disproportionately white, male, and from corporate and financial backgrounds," the report said.
It found that of 107 current directors, 78% come from banking or business backgrounds, 77% are white, and 67% are male.
Why does diversity matter? Because people from different backgrounds bring different perspectives to the table that might otherwise be overlooked or ignored.
"When people of color, women, labor representatives, consumer advocates, non-profit professionals, community activists, and academics are underrepresented within the Fed's leadership, policymaking at the Federal Reserve ends up skewed towards the interests of bankers and businesspeople," Fed Up said.
This could lead policymakers, for instance, to become overly optimistic about the nation's economic prospects, because it is listening to well-heeled business leaders but not struggling workers.
"To ensure that its policy is maximally inclusive and truly takes into consideration economic conditions for all regions and demographics, the Federal Reserve must hear from people of color and women, workers and not just employers, debtors and not just creditors."
As the New York Fed searches for a replacement for its outgoing president William Dudley, a former Goldman Sachs partner, Fed Up and others have called for a more transparent selection process for public officials in charge of such key decisions as interest-rate setting and bank regulation.
"If the Federal Reserve Bank Boards of Directors were proportionally representative of the American public, half of the directors at each Bank would be women and nearly half would be people of color, labor and consumer advocates would be better represented, and the sectoral diversity would more closely mirror the American economy," Fed Up said.
The report nodded to modest strides among some regional banks like New York and Kansas City. At the other end, the San Francisco Fed turns out to be the system's least diverse regional bank.
"Despite covering some of the most demographically diverse counties in the United States, 100% of the San Francisco Fed's Board of Directors come from the banking and financial sector. The directors are 78% white and 78% male."
Fed Up concludes with four recommendations for improving diversity at the US central bank:
- Build on recent progress and continue to appoint new directors who improve the gender and racial diversity of the Board of Directors at the twelve regional Reserve Banks.
- End the outsized representation and influence of the banking and business sectors among the Regional Bank Boards of Directors.
- Improve the sectoral diversity of the Boards by promoting directors with non-profit, academic, and labor backgrounds.
- Ensure a transparent and publicly inclusive New York Reserve Bank presidential selection process in 2018. This includes: a public timeline, list of criteria, list of candidates, and opportunities for public input via town halls or forums.
So far so bad. No names have even been publicly floated for Dudley replacement, unlike what took place during the searches for his position and Timothy Geithner before him.