Oh, what a difference a year can make.
Last July, Federal Reserve chairwoman Janet Yellen endured criticism for House testimony in which she seemed to imply that there was little the Fed could do to address the disproportionately high African-American unemployment rate.
Not so on Tuesday. In her semi-annual testimony to the Senate Banking Committee, Yellen emphasized that the failure of the economic recovery to reach communities of color influences the Fed's decision-making, and made a strong commitment to improving diversity at the central bank.
“Jobless rates have declined for all major demographic groups, including for African Americans and Hispanics,” Yellen said, according to her prepared remarks. “Despite these declines, however, it is troubling that unemployment rates for these minority groups remain higher than for the nation overall, and that the annual income of the median African-American household is still well below the median income of other U.S. households.”
Yellen’s policy argument has not fundamentally changed. It is the Fed’s job to maximize employment in the economy as the whole, she says, and it lacks the tools to target particular communities. And the Fed chief has clarified since last summer that she takes seriously how the Fed’s adjustment of interest rates can have an especially big impact on African Americans and Latinos, who have higher jobless rates.
But Yellen’s remarks and actions on Tuesday represent the Fed’s greatest demonstration yet that it is putting the concerns of communities of color front and center on its agenda.
The Fed Up campaign, a coalition of progressive groups that has led the push to make the Federal Reserve more responsive to workers in general, and communities of color in particular, was pleased with the focus of Yellen’s testimony.
“Each time since Yellen spoke last July, when she got pushback over what she said, she has gotten a little bit better,” said Jordan Haedtler, Fed Up’s campaign manager. “Now she is proactively showing that the Fed is assessing this data and does take this data into account.”
“Diversity is an extremely important goal and I will do everything I can to further advance it.”
This week’s hearings, held every six months in both chambers of Congress -- the House will hold its hearing on Wednesday -- are an opportunity for the Fed chair to update lawmakers about the overall state of the economy. As part of the briefing, the Fed releases an accompanying monetary policy report summarizing its economic assessment and research.
For the first time, the Fed chose to devote a section of its report to whether the “gains of the economic expansion [have] been widely shared.” That section focused on how the recovery affected different races and ethnicities differently.
The results are discouraging. Despite years of job growth, the rates of full-time work for African Americans and Latinos are a few percentage points lower than they were before the recession, while the rates among white and Asian-American workers have more or less reached pre-recession levels. And the median income of black households, which took the biggest hit of any group during the recession, has also been slower to recover, reaching only 88 percent of what it was in 2007, compared with about 94 percent for the other three groups.
Responding to a question about the new section from Sen. Sherrod Brown (D-Ohio), Yellen insisted that weighing the disparate impact of economic growth on a range of different groups is a key part of the Fed’s mission.
“There are very significant differences in success in the labor market across demographic groups,” she said. “It is important for us to be aware of those differences and to focus on them as we think about monetary policy and the broader work that the Federal Reserve does in the area of community development and trying to make sure that financial services are widely available to those that need it, including low- and moderate-income [households].”
Yellen also recognized the importance of diversity -- of race, gender, professional background and ideology -- within the Fed’s ranks in ensuring the bank remains sensitive to a broad array of Americans’ economic experiences.
She touted her creation of a task force in the Fed to improve its gender and ethnic diversity, but acknowledged there is more to be done.
“Diversity is an extremely important goal and I will do everything I can to further advance it,” Yellen said.
Progressive groups and their allies in Congress trying to make the Fed more accountable to the public have focused on increasing diversity and reducing Wall Street’s influence at the central bank. Eleven senators, including Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.), and 116 House members sent a letter to Yellen on May 12 urging her to prioritize the diversity of Fed officials, especially at the 12 regional Fed banks, which are privately owned. (Hillary Clinton expressed similar sentiments in a statement later that day.)
The makeup of the regional Fed bank boards is important because they are dominated by the big banks and have free reign to appoint their presidents. The regional Fed bank presidents hold five seats on the Federal Open Market Committee, the central bank panel that adjusts the benchmark interest rate. Currently, regional Fed presidents make up half of the FOMC’s influential votes.
As a result, the Fed officials with the power to raise interest rates and effectively increase unemployment are selected by people who are disproportionately white, male and from the finance and business sectors.
In the interests of changing that, the Fed Up campaign on Monday released a slate of 39 candidates for the regional Federal Reserve bank boards of directors. The candidates not only reflect racial and gender diversity, but also come exclusively from academic institutions, community groups and labor organizations.
“On racial and gender diversity there has been modest progress, though it has not taken place at the rate we would like to see,” Haedtler said. Haedtler added that there is even greater room for improvement when it comes to the diversity of professional backgrounds of board members and other top Fed officials, an area where he said there has been "regression" under Yellen's watch.