Posted on October 19, 2016

The Fed Embraces a More Diverse Future

Conor Sen, Bloomberg, October 18, 2016

The Federal Reserve gave two indications last week that one of its next structural pushes will be toward incorporating more diversity into how it conducts its business. {snip}

The first sign came in the release of the minutes from the September Fed meeting. For the third meeting in a row, the Fed commented on racial unemployment disparities, pointing out that “the unemployment rates for African Americans and Hispanics remained above the rate for whites.” The Fed also noted that for ages 25 to 64, the employment-to-population ratio was higher for whites than for blacks and Hispanics.

The second sign came in comments made by Minneapolis Fed President Neel Kashkari. “We cannot have confidence we are achieving maximum employment if we don’t understand what’s happening beneath the surface. . . . Understanding the composition of maximum employment is actually very important to us achieving the mandate that Congress has given us,” he said. Kashkari, whose parents immigrated to the U.S. from India, has previously said he will spend a day in the life of a struggling black family in order to better understand that experience.

This incorporation of demographic data in policy making isn’t the only way the Fed is looking to account for diversity. The Fed has increasingly been criticized by congressional Democrats for a lack of diversity on its staff. None of the Fed’s 12 regional branches has ever been led by a black or Hispanic president. Fed Chair Janet Yellen has pledged to increase diversity among the Fed’s ranks as it looks for a new Atlanta Fed president. {snip}


{snip} While it may not be a near-term decision, at some point the Fed may decide to weigh in on what full employment looks like for different racial groups. Narayana Kocherlakota, my Bloomberg View colleague and former Minneapolis Fed president, has written about how over time the ratio between black unemployment and overall unemployment has been roughly 1.9. While the Fed may have no direct ability to do anything about this relationship, it may be less willing to call an overall unemployment rate of 4.5 to 5 percent full employment if it coincides with a black unemployment rate of 8.5 to 9 percent.

{snip} Should Hillary Clinton be elected president (as appears more probable than not at the moment) and have a Democratic-controlled Senate, it’s likely that she will be urged by members of her party to appoint both female and nonwhite candidates who also are more concerned with wage growth and employment than inflation. {snip}