OPINION: Race and gender should not be the Fed's primary concern in 2022

President Joe Biden nominated former Federal Reserve Governor Sarah Bloom Raskin to be the Federal Reserve’s vice chair for supervision and two Black economists — Lisa Cook and Philip Jefferson — to fill the remaining seats on the board.

If confirmed by the Senate, the appointments would make the top leadership of the world’s most powerful central bank the most diverse by race and gender in its 108-year history.

“They will bring long overdue diversity to the leadership of the Federal Reserve, including the first Black woman in history to serve on the Board and the fourth Black man to serve on the Board,” the White House said in a statement, referring to Cook and Jefferson. 

“When we have leaders in the Federal government that reflect the diversity of our country, it results in better outcomes for all Americans. That is especially true in our economy where too many groups historically have been left behind or left out altogether,” the statement further read.

Cook, a professor of economics and international relations at Michigan State University, has written extensively about the economic consequences of racial disparities and gender inequality, while Jefferson, the vice president for academic affairs and professor of economics at Davidson College, has focused his research on wages, poverty and income distribution.

But Sen. Pat Toomey, the ranking Republican member of the Senate Banking Committee, was quick to blast the nominations, saying he will "closely examine" whether Cook and Jefferson have "the necessary experience, judgment, and policy views to serve as Fed Governors."

Meanwhile, Senate Banking Chair Sherrod Brown, D-Ohio, celebrated the move in a press release, echoing previous calls from Democrats for Biden to improve the diversity at the Fed and other federal financial institutions.  

“President Biden is showing the country what a Federal Reserve standing on the side of workers and their local communities looks like,” Brown said. “We need leaders who will ensure that workers and their families reap the benefits of the economic growth they create, and who will not repeat past mistakes that led to a booming recovery for Wall Street, and a weak one for everyone else.”

“They will also bring important perspectives to the Federal Reserve Board about the economic issues women, Black and brown workers, and rural and industrial communities across the country face. I urge my colleagues to support these nominees and look forward to their hearings before the Banking and Housing Committee,” he added. 

Democratic Sen. Jack Reed also released a statement saying, “These nominees will keep the Fed focused on inclusive, long-term job growth while ensuring the Fed is more representative of the people it serves.  President Biden is signaling his commitment to putting families and workers first and holding Wall Street accountable.”

But these calls for the diversification of the Fed are not new and represent a dangerous departure for what some economists have called “one of the world’s more responsible and successful central banks.”

Jesse Ferguson, Hillary Clinton’s former campaign spokesman, first hinted at the Democrats’ vision for a reinvented Fed in May 2016 when he said, “The Federal Reserve is a vital institution for our economy and the wellbeing of our middle class, and the American people should have no doubt that the Fed is serving the public interest.”  

“That's why Secretary Clinton believes that the Fed needs to be more representative of America as a whole as well as that commonsense reforms — like getting bankers off the boards of regional Federal Reserve banks — are long overdue,” he added.

In the same statement, Ferguson revealed that Clinton wanted to defend the dual mandate and ensure that the focus of the Federal Reserve would be the “wellbeing of our middle class” and how its policies affect African Americans, Hispanics and other minorities.

Curiously enough, Clinton’s statement seemed to echo former Fed chief Janet Yellen’s take when she stated that, “Although we work through financial markets, our goal is to help Main Street, not Wall Street.”

But while the intentions behind such statements may be good, that doesn't necessarily make them valid or justified. 

Although some may believe having a more racially or gender diverse government is a noble aspiration, it should not be the criteria when appointing Federal Reserve board members -- especially as the Fed confronts historic levels of inflation, volatility in labor markets and renewed uncertainty about the economy as yet another variant of COVID-19 continues to spread across the globe.

With regards to the dual-mandate — to pursue both inflation and employment targets — economists have long maintained that although politically appealing, honoring both parts of the mandate is not only contradictory but also unrealistic.

Like all other central banks, the Fed has only a limited ability to directly influence employment.

It was for good reason that Fed chairs Volcker and Greenspan were both committed to the idea of low and stable inflation and that Nobel Prize-winning economist Milton Friedman was a vocal advocate for price stability.

Furthermore, as former Fed board nominee Judy Shelton once noted, what’s polemic about publicly speaking about the Fed as a means by which to fix income and wealth inequality is that it implies action.

According to Shelton, it is dangerous to view the Fed as a force for good and not “as a distorting government interloper into private-sector credit markets whose clumsy efforts skew financial rewards to savvy corporate strategists and sophisticated investors.”

Today more than ever, the policies implemented by the Fed are especially important because money is our society’s most basic medium of exchange. The manipulation of its value affects everyday citizens both in the short and long terms.

Experimental decisions taken by central banks — be it to toy with negative interest rates, engage in endless rounds of quantitative easing, or pay banks to keep loanable funds in sterile depository accounts — inevitably impact the value of the dollars we use to buy groceries today or pay off our mortgages over the next couple of decades.

Perhaps more daunting still is the fact that a lack of rules or central bank predictability makes international trade and cooperation difficult, at best. Without central bank coherency, monetary disorder will only continue to undermine competitive markets and the notion of free trade.

Ultimately, lawmakers should approach the nomination hearings of Raskin, Cook and Jefferson with openness but their decisions should be based on their credentials and abilities, not their race or gender. They should also approach any decision with a clear understanding that it is not the role of politicians to micromanage the Fed.

A central bank governed by the whims of politics could easily lead to monetary disaster — as the politicized central banks of Argentina and Venezuela have clearly shown. 

Noting the Fed’s role in the global economy, today, more than ever, we need leaders who will provide a rules-based approach to a real economic recovery.