The Fed is pursuing a more inclusive recovery. Its newest regional bank president shows it's doing so with a more diverse staff.

• The Boston Fed picked Susan Collins, a University of Michigan economist, as its next president on Wednesday.
• Collins will be just the second Black Fed president ever; her selection points to a shift at the Fed.

The Federal Reserve is changing. Its leadership is poised to become more diverse, and its updated playbook is trading low inflation for a more inclusive recovery.

The central bank's Boston branch announced Wednesday it picked Susan Collins, a University of Michigan administrator and economist, as its next president. When Collins assumes the role in July, she'll become the first Black woman to lead a regional Fed bank and just the second Black Fed president.

She'll immediately shoulder some huge responsibilities, too. Collins will become a voting member of the Federal Open Market Committee in the second half of the year, meaning she'll help pilot the central bank as it reins in pandemic support and escalates its fight with historic inflation.

That fight symbolizes the other pivot happening at the Fed. The central bank is poised to start raising interest rates in March, kicking off a cycle that aims to curb inflation. The tradeoff, if successful, will mean slower price growth but higher borrowing costs for everything from mortgages to credit card payments. It's all part of the Fed's plan to foster a more inclusive recovery. And so far, it's working.

Bucking the Fed's 109-year staffing precedent

Collins' selection is part of a larger push to inject more diversity into the central bank's ranks. The Fed's staff has been dominated by white men since it was founded in 1913. But as several vacancies emerged in 2021, President Joe Biden got the opportunity to make the central bank's leaders better reflect the makeup of the US.

Biden's three latest nominees do just that. The president in January tapped Sarah Bloom Raskin to serve as the bank's Vice Chair for Supervision, and picked Lisa Cook and Philip Jefferson to join the Fed's seven-member board of governors. If confirmed, Cook and Jefferson would be two of the five Black governors the Fed has ever had. Raskin would also serve as the first female Vice Chair for Supervision, though the role has only been held by Randal Quarles so far.

But where Raskin, Cook, and Jefferson still need to be confirmed by the Senate, Collins' new position is already locked in. The central bank's makeup is already changing.

A more diverse Fed leading a more equitable recovery

The Fed's new focus on inclusivity doesn't stop inside its ranks. The central bank rolled out a new policy framework in August 2020 that targets inflation that averages 2% over time as well as maximum employment. The latter goal differs from its prior "full employment" mandate in that it aims to create a more equitable labor market, particularly for disadvantaged groups like minorities and low-income households.

"Our revised statement emphasizes that maximum employment is a broad-based and inclusive goal," Powell said while unveiling the framework. "This change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities."

In practice, the new employment target has played a major role in the pandemic recovery. While inflation overshot the Fed's 2% target in early 2021, the central bank kept pandemic-era support in place as it waited for the labor market to heal further. Now, with inflation running at four-decade highs, the Fed is finally looking to hike interest rates and counter surging prices.

That differs dramatically from the Fed's actions in the mid-2010s. The central bank raised rates earlier on in the recovery from the financial crisis, fearing that high inflation would fuel a new recession. While former Fed Chair Janet Yellen justified the hikes by saying the economy was strong enough, some economists criticized the increases for removing aid while the labor market was still on the mend.

If the Fed's previous playbook was to control inflation at the expense of the jobs recovery, its current strategy is the opposite. And it's so far given way to a much stronger rebound, Powell said in a January 26 press conference.

"We know that the economy is in a very different place than it was when we began raising rates in 2015. Specifically, the economy is now much stronger. The labor market is far stronger," he said.

With Collins, the Fed is continuing to push for a more diverse set of leaders. And with rates finally set to climb, the central bank is doubling down on powering a more inclusive recovery.