Democrats in Congress introduced legislation Wednesday that would require the Federal Reserve to work toward closing racial employment and wage gaps.
“Systemic racism and inequality is not something that happens on its own,” Sen. Elizabeth Warren, a co-author of the bill, said. “It is a result of specific policy choices, and the Fed must take deliberate action to fix it.”
The bill, the Federal Reserve Racial and Economic Equity Act, would require the central bank to work in a way that “minimizes and eliminates racial disparities in employment, wages, wealth, and access to affordable credit.”
Under current law, the Fed is tasked with the dual mandate of pursuing stable prices and maximum sustainable employment. The Democratic bill would be the first significant change to the Fed’s mission since 1977.
The legislation was authored by Warren of Massachusetts and Sen. Kirsten Gillibrand of New York, along with Rep. Maxine Waters, a Democrat from California and chairwoman of the Financial Services Committee.The bill is co-sponsored by 16 other Democrats, including former presidential candidates Sens. Bernie Sanders, an independent from Vermont, and Cory Booker, a Democrat from New Jersey.
The bill is not expected to pass Congress under a Republican-controlled Senate but sends a signal that Democrats view the Fed as playing a role in increasing inequality and therefore should be a part of an effort to reduce gaps in wealth, housing, banking, and jobs.
In June, Warren asked Fed Chairman Jerome Powell if the central bank currently considers the impact of its monetary policy decisions on racial inequality and if it considers whether the actions it takes with respect to payments, bank regulation, and if its use of emergency authorities under the Federal Reserve Act affect different racial groups in different ways.
Warren suggested that the Fed’s coronavirus relief policy decisions highlighted racial gaps and are “not a healthy feature of our economy.”
“The Fed and Congress need to take deliberate action to ensure we reverse the serious racial gaps in the current recovery, and I’m asking Chair Powell to be specific about what the Fed can do to address this crisis within a crisis,” Warren said.
Former Vice President Joe Biden recently released a similar proposal asking the Fed to “enhance” aggressively how it deals with the “persistent racial gaps in jobs, wages, and wealth.”
Powell has often voiced his concerns about the country’s inequalities, especially how the economic devastation caused by the coronavirus is affecting low-income black and Hispanic women the most.
He has said many times, however, that the Fed does not have the tools needed to address inequality.
“We don’t really have tools that can address distributional disparate outcomes as well as fiscal policy can,” Powell said last week. Powell added that in most situations, Congress is “much better” positioned to solve inequality issues within education, healthcare, and other areas.
