Agreeing on Change / Federal Rserve
Activists say the Federal Reserve needs immediate change,
but propose different reforms
Lawmakers have been playing political football with the Federal Reserve for years, but neither Republicans nor Democrats have had much luck getting down the field.
But that could soon change, as Fed reform demands from the right and the left grow increasingly loud. Both parties have now made Fed reform a key aspect of their respective party platforms, and it looks like a big play from either side may be only a few months away.
[RELATED: Ask an Economist: Can Trump and Clinton Bring Back Jobs?]
Should Republicans dominate on Election Day at the presidential and congressional levels, they could finally make their central banking dreams a reality. The Fed would then find itself under increased congressional supervision and with significantly less policy autonomy and private sector authority than it's enjoyed under the Obama administration.
But if Democrats come out on top and launch their idealized Fed, regional central banking officials' appointment process could be totally revamped, while some of the brightest financial minds from the financial sector would be barred from high-ranking positions within the Fed because of their ties to big banks.
So regardless of which party comes out on top, the Fed could be in for an overhaul in the years ahead. And some – like those involved with the left-leaning Fed Up campaign's efforts to reform U.S. central banking – argue that wouldn't be a bad thing.
"We believe certain communities have been left out of the recovery," says Ruben Lucio, a field manager for Fed Up, noting that America's central bank has "often overlooked" the country's "low-income communities of color" over the years.
He says Fed Up's priorities include pushing the Fed to become a fully public institution, adopt policies that would "create more jobs and rising wages" and ultimately "keep interest rates low." The group is also trying to eliminate ties to Wall Street that Lucio says amount to a "huge conflict of interest."
But the Fed's apparent lack of diversity is one of the group's primary bugaboos, and they've found support from plenty of high-profile Democrats in their calls to make the Fed a less homogeneous institution. Sen. Elizabeth Warren and a group of more than 100 fellow lawmakers sent a letter to Fed Chair Janet Yellen earlier this year, calling on the Fed to broaden its diversity and give "due consideration to the interests and priorities of the millions of people around the country who still have not benefited from the recovery."
Democratic presidential nominee Hillary Clinton has since come out in support of Warren and her colleagues calling for greater diversity, and Fed Up has applauded these efforts and Democrats' inclusion of Fed diversity demands in the party's official 2016 platform.
In laying out Democrats' and Fed Up's shared perspective, Lucio says the Fed's operations for decades have benefited "a specific few," pointing out that no regional Fed bank has ever had an African-American or Latino president. A study put out in February by the Center for Popular Democracy – of which the Fed Up campaign is an initiative – found that 83 percent of employees at regional Fed banks' boards of directors are white. About 72 percent are male, and 10 of America's 12 regional Fed banks currently have a male president.
[READ: Ask an Economist: What Does the Election Mean for the Federal Reserve?]
For comparison's sake, the Census Bureau in 2015 estimated 61.6 percent of the U.S. population was classified as "white alone, not Hispanic or Latino." And only about 49 percent of the country was male. Given white men's dominant majority in domestic central banking operations, those at the Fed Up campaign have argued that the government body is naturally missing out on perspectives from major demographic groups.
"This is our whole argument," says Sean Sebastian, a field director with the campaign. "The Federal Reserve's decisions impact the entire population, so they need to be accountable to the entire population, including communities of color."
Lucio and Sebastian spoke from Jackson Hole, Wyoming, where Fed Up on Thursday organized an on-the-record discussion between several of its representatives and supporters and a handful of high-profile Fed officials during the central bank's annual gathering out West. Regional bank presidents like William Dudley from New York, Neel Kashkari from Minneapolis and Robert Kaplan from Dallas, among others, indicated earlier in the week they'd attend the conversation focused on addressing, among other things, the leadership appointment process carried out by regional Fed banks.
"The selection process for regional Fed presidents is broken," Sen. Elizabeth Warren, D-Mass., said in June when Yellen appeared before the Senate Banking, Housing and Urban Affairs Committee. "I think that Congress should take a hard look at reforming the regional Fed selection process so that we can all benefit from a Fed leadership that reflects a broader array of both backgrounds and interests."
It is illegal for the Fed to discriminate against regional officials based on gender or race, but the central bank's relatively opaque selection and appointment process has drawn plenty of criticism over the years. Regional bank officials are typically selected behind the scenes, and Fed Up is among a host of organizations suggesting the Fed should be made public so that average Americans can have a say in who fills open positions.
"The extent to which the Federal Reserve is opaque – its organizational structure is hard for the public to understand – fundamentally undermines the public confidence and over time hurts the Fed's ability to be effective," Andrew Levin, a professor at Dartmouth College who spent more than two decades in various roles at the Fed and who has since aligned himself with the Fed Up campaign, said in an interview earlier this year on Bloomberg's "What'd You Miss?"
And many of those who end up getting appointed have developed significant ties to the financial sector throughout their careers. And this is where perspectives of Democrats and Republicans – who mostly advocate for putting the Fed under increased congressional scrutiny and limit the central bank's operations in the private sector – converge. Both parties have suggested the Fed's ties to big banks and financial institutions are problematic and open the door to mismanagement and conflicts of interest.
"There is a revolving door between the Fed, the Treasury and Wall Street – a revolving door in a building all-too-eager to enrich big banks and asset holders at the expense of everyone else," Sen. Rand Paul, R-Ky., said earlier this year in support of a bill that would open up the Fed to a congressional audit. "I think it's about time we pull back the curtain to uncover this cloak of secrecy once and for all."
Paul over the years has repeatedly mounted attempts to open the central bank to more transparency and congressional oversight, leading an "Audit the Fed" movement widely supported by Republicans that would allow lawmakers on Capitol Hill to have greater authority in observing and influencing monetary policy.
Rep. Jeb Hensarling, R-Texas, has also touted his Financial CHOICE Act as an alternative to Dodd-Frank that would chain Fed action to specific benchmarks, taking what could be perceived as human error out of decisions like when to raise or lower the Fed's benchmark interest rate.
Democrats have been less eager to throw their support behind Hensarling's and Paul's efforts and have generally shied away from calling for significant Fed reform in the aftermath of the 2010 signing of the Dodd-Frank Act, which expanded the Fed's authority in overseeing the private sector. Recently, though, more and more have begun backing many of the changes proposed by the Fed Up campaign.
"The Fed doesn't want to be caught in a place where you might build bipartisan support for reining in their powers," says Sarah Binder, a senior fellow of governance studies at the Brookings Institution and a professor at George Washington University. "They need political support to make these tough choices, either when they have to rein in the economy or give it more fuel."
And yet bipartisan support for some kind of change at the Fed appears to be mounting. Holes have certainly been poked in proposals made by the right and the left, with some arguing that Democrats' proposal to make the Fed a public institution would politicize a central banking process that's supposed to exist in a separate sphere from political turmoil. Others have indicated that Republican's calls to subject the Fed to greater congressional oversight would expose the central bank to the same kind of gridlock lawmakers regularly wrestle with.
[PHOTOS: The Big Picture – August 2016]
And on the diversity front, it's worth noting that the Bureau of Labor Statistics estimated only 9.8 percent of Americans employed in financial activities in 2015 were black. About 6.4 percent were Asian, while 11.8 percent identified as Hispanic or Latino. Among those employed in professional and business services, 9.5 percent were black, 7.9 percent were Asian and 16.3 percent were Hispanic. So it's likely easier for the Fed to find white applicants to fill senior positions than it is to diversify.
But Lucio says the fact that communities of color have historically been underrepresented at the Fed – regardless of the reason – is problematic in and of itself, as central banking decisions are made by a homogeneous group "disproportionately white, male and from the corporate sector."
"We want to make sure we put regular people in to share their experiences," Lucio says. "Every time that we are not a part of the discussion, our issues and our well being is often overlooked."
As the Fed's annual central banking conference continues in scenic Jackson Hole, its current officials would be wise to take in the sights and enjoy their reprieve from their desk jobs. Once they return, it doesn't look like they'll be getting out of activists firing lines anytime soon.
Activists say the Federal Reserve needs immediate change,
but propose different reforms
Lawmakers have been playing political football with the Federal Reserve for years, but neither Republicans nor Democrats have had much luck getting down the field.
But that could soon change, as Fed reform demands from the right and the left grow increasingly loud. Both parties have now made Fed reform a key aspect of their respective party platforms, and it looks like a big play from either side may be only a few months away.
[RELATED: Ask an Economist: Can Trump and Clinton Bring Back Jobs?]
Should Republicans dominate on Election Day at the presidential and congressional levels, they could finally make their central banking dreams a reality. The Fed would then find itself under increased congressional supervision and with significantly less policy autonomy and private sector authority than it's enjoyed under the Obama administration.
But if Democrats come out on top and launch their idealized Fed, regional central banking officials' appointment process could be totally revamped, while some of the brightest financial minds from the financial sector would be barred from high-ranking positions within the Fed because of their ties to big banks.
So regardless of which party comes out on top, the Fed could be in for an overhaul in the years ahead. And some – like those involved with the left-leaning Fed Up campaign's efforts to reform U.S. central banking – argue that wouldn't be a bad thing.
"We believe certain communities have been left out of the recovery," says Ruben Lucio, a field manager for Fed Up, noting that America's central bank has "often overlooked" the country's "low-income communities of color" over the years.
He says Fed Up's priorities include pushing the Fed to become a fully public institution, adopt policies that would "create more jobs and rising wages" and ultimately "keep interest rates low." The group is also trying to eliminate ties to Wall Street that Lucio says amount to a "huge conflict of interest."
But the Fed's apparent lack of diversity is one of the group's primary bugaboos, and they've found support from plenty of high-profile Democrats in their calls to make the Fed a less homogeneous institution. Sen. Elizabeth Warren and a group of more than 100 fellow lawmakers sent a letter to Fed Chair Janet Yellen earlier this year, calling on the Fed to broaden its diversity and give "due consideration to the interests and priorities of the millions of people around the country who still have not benefited from the recovery."
Democratic presidential nominee Hillary Clinton has since come out in support of Warren and her colleagues calling for greater diversity, and Fed Up has applauded these efforts and Democrats' inclusion of Fed diversity demands in the party's official 2016 platform.
In laying out Democrats' and Fed Up's shared perspective, Lucio says the Fed's operations for decades have benefited "a specific few," pointing out that no regional Fed bank has ever had an African-American or Latino president. A study put out in February by the Center for Popular Democracy – of which the Fed Up campaign is an initiative – found that 83 percent of employees at regional Fed banks' boards of directors are white. About 72 percent are male, and 10 of America's 12 regional Fed banks currently have a male president.
[READ: Ask an Economist: What Does the Election Mean for the Federal Reserve?]
For comparison's sake, the Census Bureau in 2015 estimated 61.6 percent of the U.S. population was classified as "white alone, not Hispanic or Latino." And only about 49 percent of the country was male. Given white men's dominant majority in domestic central banking operations, those at the Fed Up campaign have argued that the government body is naturally missing out on perspectives from major demographic groups.
"This is our whole argument," says Sean Sebastian, a field director with the campaign. "The Federal Reserve's decisions impact the entire population, so they need to be accountable to the entire population, including communities of color."
Lucio and Sebastian spoke from Jackson Hole, Wyoming, where Fed Up on Thursday organized an on-the-record discussion between several of its representatives and supporters and a handful of high-profile Fed officials during the central bank's annual gathering out West. Regional bank presidents like William Dudley from New York, Neel Kashkari from Minneapolis and Robert Kaplan from Dallas, among others, indicated earlier in the week they'd attend the conversation focused on addressing, among other things, the leadership appointment process carried out by regional Fed banks.
"The selection process for regional Fed presidents is broken," Sen. Elizabeth Warren, D-Mass., said in June when Yellen appeared before the Senate Banking, Housing and Urban Affairs Committee. "I think that Congress should take a hard look at reforming the regional Fed selection process so that we can all benefit from a Fed leadership that reflects a broader array of both backgrounds and interests."
It is illegal for the Fed to discriminate against regional officials based on gender or race, but the central bank's relatively opaque selection and appointment process has drawn plenty of criticism over the years. Regional bank officials are typically selected behind the scenes, and Fed Up is among a host of organizations suggesting the Fed should be made public so that average Americans can have a say in who fills open positions.
"The extent to which the Federal Reserve is opaque – its organizational structure is hard for the public to understand – fundamentally undermines the public confidence and over time hurts the Fed's ability to be effective," Andrew Levin, a professor at Dartmouth College who spent more than two decades in various roles at the Fed and who has since aligned himself with the Fed Up campaign, said in an interview earlier this year on Bloomberg's "What'd You Miss?"
And many of those who end up getting appointed have developed significant ties to the financial sector throughout their careers. And this is where perspectives of Democrats and Republicans – who mostly advocate for putting the Fed under increased congressional scrutiny and limit the central bank's operations in the private sector – converge. Both parties have suggested the Fed's ties to big banks and financial institutions are problematic and open the door to mismanagement and conflicts of interest.
"There is a revolving door between the Fed, the Treasury and Wall Street – a revolving door in a building all-too-eager to enrich big banks and asset holders at the expense of everyone else," Sen. Rand Paul, R-Ky., said earlier this year in support of a bill that would open up the Fed to a congressional audit. "I think it's about time we pull back the curtain to uncover this cloak of secrecy once and for all."
Paul over the years has repeatedly mounted attempts to open the central bank to more transparency and congressional oversight, leading an "Audit the Fed" movement widely supported by Republicans that would allow lawmakers on Capitol Hill to have greater authority in observing and influencing monetary policy.
Rep. Jeb Hensarling, R-Texas, has also touted his Financial CHOICE Act as an alternative to Dodd-Frank that would chain Fed action to specific benchmarks, taking what could be perceived as human error out of decisions like when to raise or lower the Fed's benchmark interest rate.
Democrats have been less eager to throw their support behind Hensarling's and Paul's efforts and have generally shied away from calling for significant Fed reform in the aftermath of the 2010 signing of the Dodd-Frank Act, which expanded the Fed's authority in overseeing the private sector. Recently, though, more and more have begun backing many of the changes proposed by the Fed Up campaign.
"The Fed doesn't want to be caught in a place where you might build bipartisan support for reining in their powers," says Sarah Binder, a senior fellow of governance studies at the Brookings Institution and a professor at George Washington University. "They need political support to make these tough choices, either when they have to rein in the economy or give it more fuel."
And yet bipartisan support for some kind of change at the Fed appears to be mounting. Holes have certainly been poked in proposals made by the right and the left, with some arguing that Democrats' proposal to make the Fed a public institution would politicize a central banking process that's supposed to exist in a separate sphere from political turmoil. Others have indicated that Republican's calls to subject the Fed to greater congressional oversight would expose the central bank to the same kind of gridlock lawmakers regularly wrestle with.
[PHOTOS: The Big Picture – August 2016]
And on the diversity front, it's worth noting that the Bureau of Labor Statistics estimated only 9.8 percent of Americans employed in financial activities in 2015 were black. About 6.4 percent were Asian, while 11.8 percent identified as Hispanic or Latino. Among those employed in professional and business services, 9.5 percent were black, 7.9 percent were Asian and 16.3 percent were Hispanic. So it's likely easier for the Fed to find white applicants to fill senior positions than it is to diversify.
But Lucio says the fact that communities of color have historically been underrepresented at the Fed – regardless of the reason – is problematic in and of itself, as central banking decisions are made by a homogeneous group "disproportionately white, male and from the corporate sector."
"We want to make sure we put regular people in to share their experiences," Lucio says. "Every time that we are not a part of the discussion, our issues and our well being is often overlooked."
As the Fed's annual central banking conference continues in scenic Jackson Hole, its current officials would be wise to take in the sights and enjoy their reprieve from their desk jobs. Once they return, it doesn't look like they'll be getting out of activists firing lines anytime soon.
