President Biden Must Appoint a New Fed Chair Who Is Serious About Racial Equity
by Brittany Alston, Saqib Bhatti, and Vasudha Desikan
We all know that the COVID-19 pandemic is not just a public health emergency but also an economic catastrophe that has had disastrous impacts on Black, Indigenous, and people of color (BIPOC) communities. While U.S. billionaires have seen their wealth increase by nearly $5 trillion dollars since March of last year, these past 18 months have brought into sharp relief how domestic economic policymaking continues to fail poor folks and BIPOC communities. This is the direct result of deliberate choices made by the leaders of the most powerful economic policy institution in the world, Federal Reserve Chair Jay Powell and his two Vice Chairs, Richard Clarida and Randal Quarles.
As the terms of these three Trump appointees come to a close, President Biden has the opportunity to change course and replace the homogenous leadership at the Fed with leaders from diverse backgrounds with progressive politics who can finally move the needle on racial equity by prioritizing the needs of BIPOC communities over Wall Street. That is why we are calling on President Biden to remove Jay Powell as Chair of the Federal Reserve and to forge a new future with Lisa Cook as the Vice Chair and Sarah Bloom Raskin as the Vice Chair for Supervision.
The Case Against Powell
- Powell took a trickle-down approach to COVID relief, by pumping hundreds of billions into Wall Street and wealthy corporations, but refused to offer support directly to the communities that most needed it.
- If Powell had wanted to prioritize racial equity, he should have made long-term, zero-cost loans available to all state, territorial, tribal, and local governments and public agencies so they could invest in expanding the social safety net in their communities while also creating good jobs.
- The Fed could have also opened lending facilities to support BIPOC-owned small businesses, which would have helped close the racial employment gap and stimulated local economies.
- As Fed Chair, Powell has ushered in an era of massive deregulation that has made it easier for predatory, too-big-to-fail banks to again engage in reckless and risky behavior that could threaten the global economy and the livelihoods of BIPOC communities in particular.
- Powell has refused to use the Fed’s many regulatory powers to address climate change. On the contrary, Powell’s Fed has actually injected billions directly into the fossil fuel industry, which harms the BIPOC communities who are on the front lines of climate disasters.
The Limits of Powell’s Empathy and Imagination
When asked about the Federal Reserve Bank’s role in combating racial economic disparities in July 2020, Fed Chair Jay Powell responded, “We don’t really have tools that can address disparate distributional outcomes.” This lack of imagination is on brand for the white Republicans leading the Fed. Powell showed great creativity in finding ways to use COVID relief packages to redistribute wealth towards banks and megacorporations, yet somehow believed the most powerful central bank in the world was powerless to effect racially equitable outcomes. It’s not surprising that a Republican white man who spent most of his career working in private equity cannot imagine how to use his power to bridge the racial wealth gap.
With different Fed leadership, we could envision how to strengthen Wall Street oversight and regulation. The Fed could even begin thinking about reparative policymaking that could start to make up for decades of exclusion for Black people in the U.S. As Mehrsa Baradaran argues, “Over a weekend, the Fed infused trillions of dollars into the repo markets and into the economy. We don’t have limits of resources. We have limits of empathy and imagination.”
Biden owes his Presidency to Black and Latinx voters across the country. He actively campaigned on a racial equity plan that would bring diverse leadership to financial regulatory agencies and the Federal Reserve. But to truly “build back better”, we need targeted programs to address Black unemployment, stronger fiscal policy measures that ensure state and local governments can fully fund BIPOC communities, and aggressive regulation to mitigate climate change risks. If President Biden is serious about racial, economic, and climate justice, he must dump Powell and appoint new, diverse, progressive leaders at the Fed who will support full employment while also pursuing policies that will break the cycle of Wall Street profiteering and lead to prosperity for the rest of us.
Powell Prioritized Wall Street Over BIPOC Communities
Under Powell’s leadership, the Federal Reserve has doubled down on the debunked theory of trickle-down economics that President Biden himself condemned during a recent town hall. Instead of directing recovery dollars directly to the Black and brown communities who were hit hardest by the economic impact of the pandemic, Powell’s Fed propped up Corporate America by pumping hundreds of billions into large corporations, just like the Federal Reserve did during the Great Recession. Powell offered some of the wealthiest corporations in the world near-zero interest rates on loans to help them improve their financial statements. Instead of making these dirt cheap loans to Apple and Verizon, if Powell had offered interest-free loans to BIPOC-owned small businesses, it could have put cash directly in the hands of the communities that were hit hardest by the pandemic.
Meanwhile, Powell’s Fed also refused to offer meaningful relief to state and local governments, many of whom were already struggling even before COVID-19 hit. The Fed’s Municipal Liquidity Facility (MLF), which was supposed to help cities and states get through the pandemic, was so useless that only two borrowers accessed it. The first iteration of the MLF virtually locked out majority-Black cities. A Brookings report on the MLF stated that ”none of the thirty-five most African American cities in America meets the Fed’s criteria for direct assistance.” After eligibility was later expanded, the barriers to entry and prohibitively-high costs still made the facility an overwhelming failure. The predatory terms that Powell’s Fed offered through the MLF were deliberately designed to force cities to turn to Wall Street for loans. Instead of aiding BIPOC cities with the MLF, like Congress had intended, Powell threw them to the sharks.
Powell had the opportunity to help communities not only weather COVID-19 with more grace, but to actually come out stronger and more resilient, with dramatically expanded public services and infrastructure. He refused. State, territorial, tribal, and local governments and public agencies currently pay $160 billion a year in interest to Wall Street investors on long-term debt. The Fed could have stepped in as a direct lender to provide zero-cost loans to government borrowers so they could focus on funding community needs. But because Powell offered them penalty interest rates, forcing them to seek financing from the private markets instead, cities like Chicago are now trying to convince the Treasury Department to let them use COVID relief dollars to pay back banks instead of funding a recovery in Black and brown neighborhoods. The debt relief the Fed could have provided could have been a transformative moment in American history — one that would have finally allowed majority Black and brown cities and tribal governments to redirect limited resources towards community investments like education, housing, and healthcare. Instead, Powell turned it into another tale of Wall Street extraction from BIPOC communities.
A recent New York Times op-ed noted that “such a federal lending system…by the Fed could also allow schools to sustainably invest in repair projects — fixing damaged infrastructure, reducing class sizes and refurbishing facilities into eco-friendly, well ventilated schools.” If this lending were also extended to community colleges and public health districts, it could help address racial disparities in education and healthcare and improve quality across the board. As the largest employers of Black workers in the country, local governments and public agencies can become agents for providing economic security and building intergenerational Black wealth if they can gain access to a bold, zero-cost Federal Reserve municipal lending program.
The Fed could also have used such a lending program to help avert the displacement of millions of Black and brown families from their communities. By opening a direct lending facility for public housing agencies, the Fed could have offered them zero-cost loans to buy vacant housing units in BIPOC neighborhoods facing gentrification. This would have prevented private equity investors from swooping in, buying up rental units, and evicting tenants during a pandemic, and it would also have greatly increased the stock of high-quality public housing to enable Black and brown families to stay in the neighborhoods they have lived in for decades. Of course it bears repeating that both Powell and his Vice Chair of Supervision, Randal Quarles, themselves hail from the private equity world.
This is exactly the kind of change that would have been aligned with President Biden’s vision for advancing racial equity. But the Administration would be fooling itself if it believed that Powell, or his Vice Chairs share this vision.
Powell’s Love of Deregulation Hurts BIPOC Communities
The 2008 financial crash taught us some important lessons. The first is that big banks can never be trusted to “do the right thing.” The second is that Wall Street will always find a way to make a buck off poor people — especially poor people of color — no matter the risk. Progressives, both inside and outside of government, fought for Wall Street reform through the Dodd-Frank Act so we could prevent future financial crises from destroying the livelihoods of families who are already struggling to get by.
Unfortunately, Powell has been no champion for financial regulation. Rather his term as Fed Chair has marked an era of massive deregulation that has undone much of the reforms that were passed in the wake of the 2008 Wall Street crash. His policies have again made it easier for predatory, too-big-to-fail banks to engage in reckless and risky behavior that could threaten the global economy and the livelihoods of BIPOC communities in particular.
One element of Powell’s deregulatory agenda is the dilution of the Volcker Rule, which was supposed to force banks to separate out the traditional retail banking side of their business from the riskier investment banking side. After all, if your banker can dip into your savings account every time he wants to go to the casino, then you might as well keep hiding your money under the mattress. But apparently, Jay Powell believes that bankers should be allowed to use customers’ deposits to finance their gambling addictions. Perhaps he has forgotten how that turned out for us in the run up to 2008.
BIPOC communities are also at the frontlines of climate change. As we write this, Hurricane Ida has left parts of New Orleans uninhabitable while over 30,000 people are at risk of losing their homes to wildfires in northern California. Financial institutions, especially big banks, are directly financing climate change through investments in fossil fuels. The Fed has a critical role to play in mitigating climate risk but has completely failed to do so despite receiving clear instructions from climate justice organizations. As Graham Steele notes, “By not adopting effective macroprudential climate policies, financial regulators are providing a nontransparent, indirect subsidy to climate change-causing industries.” Of course Powell’s Fed has also used COVID relief programs to provide billions in direct subsidies to climate change-causing industries.
Powell Has Failed On All Fronts Of Racial Equity & Inclusion
Let’s be real: Jay Powell is not a racial justice hero. While he performed “woke” politics by mentioning a DC tent city he once saw, Powell has not even taken the time to learn about the tools at his disposal to advance a racial equity agenda in his ten years serving on the Federal Reserve Board.
While he has been lauded by some for pursuing full unemployment, his race-blind approach has done little to reduce the racial gaps in wages and employment, especially for low-wage Black workers. The fight for full unemployment is deeply rooted in the civil rights movement and was hard-fought for and won by Dr. Martin Luther King, Jr. and Coretta Scott King. Their activism led to the passage of the Humphrey-Hawkins Full Employment Act in 1978. However, their vision of an economy where Black workers aren’t always trailing behind others still hasn’t been realized.
Fed Chairs, past and present, share heavily in the blame. In deflecting responsibility for addressing racial disparities in unemployment rates, Powell said, “Fiscal, education and health-care policies in the U.S. can do more than monetary policy to combat the higher unemployment rates experienced by Black Americans.” Clearly, Powell is ignoring the role that the Federal Reserve can play in shifting these other policies. This is the kind of race-blind rhetoric that is to be expected from an all-white Fed Board. As Atlanta Regional Fed President Raphael Bostic has sharply noted, “Race is a variable that economists are lazy about…That means we’re drawing conclusions that are often not reflective of reality.”
The Fed’s lack of policymaking chops to bridge racial disparities is only compounded by the fact that the institution is, according to two scholars who have studied it, “overwhelmingly white, overwhelmingly male, and overwhelmingly drawn from the business communities within their districts, with little participation from minorities, women, or from areas of the economy — labor, nonprofits, the academy — with important contributions to make to Fed governance.”
As of January, of the 417 staff at the Federal Reserve, only two were Black and 318 were white.
The Fed has a race problem across the board.
That is why it’s time for President Biden to follow through on the racial equity plan from his campaign by removing Powell when his term ends in February and ushering in new leadership.
Imagining a Better Future
President Biden has a historic opportunity to remake the all-white Federal Reserve Board in the image of the coalition that won him the White House. It is time to stop glorifying Powell’s outdated leadership, so that we can make space for BIPOC and women economists to pave the way for a Federal Reserve that has the creativity and the willingness to reimagine the Federal Reserve as an institution for racial justice.
Two outstanding candidates who are shining examples of a better Fed are Lisa Cook and Sarah Bloom Raskin. Lisa Cook is a distinguished labor market economist whose commitment to racial and economic justice is paired with unparalleled expertise on racial disparities. Her scholarship on the effects of foreclosures during the Great Recession along with her active work to deepen community engagement on economic policymaking is exactly what is missing from the Fed. She’s been a champion for other budding Black women economists, and has directly increased the diversity of the Fed’s research assistant program.
Sarah Bloom Raskin was formerly on the Fed Board and has a long and deep history as a financial reform advocate. During her time at the Fed, she voted against the Volcker Rule due to her belief that it wasn’t “tough enough” and was successful in shaping a stronger rule. As Maryland’s chief financial regulator, Raskin took on payday lenders and successfully pushed for
legislation that cracked down on lending at exorbitant rates. For the past few years, she’s been vocal about the need to take climate change seriously as a risk to the financial system.
We are urging President Biden to prioritize the needs of BIPOC communities, who are facing the multiple threats of COVID-19, structural racism, climate change, and corporate and financial profiteering, as he considers new leadership at the Federal Reserve. What this means is removing Jay Powell as Chair and setting on a new, better path with Lisa Cook as the Vice Chair and Sarah Bloom Raskin as the Vice Chair for Supervision. This is a bold move that will yield huge payoffs to our communities that have been excluded for too long and will help us build back even better.
Brittany Alston is a Deputy Research Director at the ACRE. Saqib Bhatti is a Co-Executive Director at the ACRE. Vasudha Desikan is the Political Director at ACRE.