A bill introduced by three Democratic lawmakers Wednesday would require the Federal Reserve to actively work to narrow racial gaps in wealth, income and employment in the U.S.
Called the “Federal Reserve Racial and Economic Equity Act,” the bill, spearheaded by Rep. Maxine Waters (D-Calif.) and Sens. Elizabeth Warren (D-Mass.) and Kirsten Gillibrand (D-N.Y.), would make reducing racial economic inequality a core part of the central bank’s broader mission of maximizing employment and keeping prices stable.
“The Fed can use its existing authorities to reverse the serious racial gaps in our economy, including in our current recovery from the COVID-19 crisis — and our bill will require the Fed to do so,” Warren said in a statement.
“Systemic racism and inequality is not something that happens on its own. It is a result of specific policy choices and the Fed must take deliberate action to fix it.”
The average white family holds roughly ten times as much wealth as the average Black family, according to Fed data, largely due to decades of discrimination and disinvestment that stripped minorities of opportunities to accumulate wealth and financial assets.
The coronavirus pandemic, which has disproportionately harmed Black and Hispanic Americans, and the protests following the police killings of George Floyd and Breonna Taylor have intensified the urgency among policymakers to reverse those dynamics.
“As the COVID-19 pandemic crisis and its economic impacts disproportionately affect communities of color, and communities around the country march in the streets for justice, the Federal Reserve must do everything it can to ensure that the recovery is equitably shared,” said Waters, who last year became the first Black lawmaker and the first woman to chair the House Financial Services Committee.
While 22 percent of small businesses owners nationwide closed up shop during the pandemic, 41 percent of Black-owned and 32 percent of Latinx-owned small firms were forced to close, largely due to “weaker financial cushions, weaker bank relationships, and preexisting funding gaps prior to the pandemic,” according to research from the Federal Reserve Bank of New York.
The coronavirus-driven recession and the protests against racial injustice have also ramped up pressure on the Fed to find ways to reduce income inequality more broadly.
The Fed’s primary response to the past two deep economic downturns has been cutting interest rates to near-zero levels and purchasing a wide range of assets to help keep credit flowing and stimulate the economy. But those practices can also inflate the values of stocks and other financial assets, which can broaden the gap between the wealthy and less-well-off Low interest rates can hinder the long-term saving ability of those who must keep their wealth in easily accessible and stable bank accounts.
The bill from Warren, Waters and Gillibrand does not specify how the Fed should solve this problem, and Fed leaders have insisted that the best way to reduce inequality is by keeping joblessness as low as possible across the board.
“A tight job market is probably the best single thing that the Fed can do to support gains by all low- and moderate-income communities, and particularly for minority communities that are heavily representative in those groups,” said Fed Chair Jerome Powell during a June hearing before the Senate Banking Committee.
“Everything we’re doing is to try to get the labor market back to where it was in February,” Powell continued, referring to the 50-year-low unemployment rate of 3.5 percent the U.S. enjoyed before the pandemic-driven recession.
Even so, the Fed is facing growing calls to focus more directly on racial inequalities, including from within the Fed system.
“We have the ability and the responsibility to link economic mobility and resilience to broader economic health and to raise awareness among stakeholders who may not be fully attuned to the consequences of an inequitable economy,” wrote Raphael Bostic, president of the Federal Reserve Bank of Atlanta, in a June 12 essay.
“Our work on this disparity has been going on for some time, but its urgency and importance have been renewed as the economic inequality adds fuel to the underlying oppression that is now driving the protesters,” continued Bostic, the first Black president of a Fed reserve bank.