Under pressure, U.S. Federal Reserve takes baby steps toward a more transparent and inclusive era
Last year’s behind-the-scenes selection of three men with ties to Goldman Sachs to serve atop the Federal Reserve did not go over well with outspoken civic groups and many Democrats, including Hillary Clinton, who have all called for a more transparent and inclusive central bank. In response to the critics, the Fed has rolled out a series of announcements, online forums and face-to-face meetings with Americans to portray a more open process of selecting its 12 district presidents that is also more sensitive to racial and gender diversity.
The Minneapolis Fed, like its counterparts in Philadelphia and Dallas last year, named a president in Neel Kashkari with a past at Goldman, the Wall Street bank. But it also broke ranks from others when it released video testimonials from directors shedding light on the year-long search process, and even published a “summary of attributes” sought in the candidate. The Atlanta Fed said last month it seeks a “diverse set of candidates” to replace outgoing chief Dennis Lockhart, and this month its board chair hosted a pubic webcast to explain the historically shrouded search process, raising hopes it would name the first black or Latino Fed president in the central bank’s 103-year history.
“In the Federal Reserve system we are taking this very seriously, but it’s not just because we want to go and say we’re diverse,” Loretta Mester, the Cleveland Fed President, told a gathering of low-wage workers and progressive economists organized by Fed Up, a labor-affiliated coalition of civic groups pushing for reforms. “It really is about … getting different view points that are very helpful to us in setting policy and thinking about the economy and understanding the trends,” she said at the Cleveland Fed on Friday. Mester met the group a day after her bank launched an online application form for the public to recommend people “diverse in backgrounds and perspectives” for board positions and advisory roles across her Midwest district. Asked to what extent outside pressure prompted the move, a spokeswoman said it was “just the latest in our ongoing efforts to broaden our outreach.”
The 12 Fed presidents have five rotating votes on U.S. interest rate policy. Unlike the five current governors at the Fed Board in Washington, who are selected by the White House and approved by the Senate, the presidents are chosen by their district directors, half of whom are themselves picked by private local banks that technically own the Fed banks. The dizzying structure is meant to ensure views from across the country are heard. But critics say it leaves the Fed beholden to bankers who are not representative of the public, and they point out that 11 of 12 district presidents are white while 10 of them are men. Among employees at the Fed Board in Washington, including service workers, 43 percent were non-white and 43 percent female last year. However at the executive level it was 18 percent and 37 percent, respectively, according to the central bank.
Clinton, the presidential candidate, has come out in favor of dropping bankers from district boards and making the Fed “more representative of America as a whole,” according to her party’s platform. That followed a May letter from 127 lawmakers to Fed Chair Janet Yellen urging more diversity.
After years of resisting more overt political efforts to curb its independence, the Fed under Yellen appears willing to take small steps in the name of transparency and inclusively. In an unusual entry in minutes of their meeting last month, Fed officials discussed a staff analysis of “differential patterns of unemployment across racial and ethnic groups.” U.S. unemployment among blacks is twice that of whites.
“While we applaud this progress, these very basic steps were available to them for the last hundred years and have only been rolled out very recently,” Shawn Sebastian, a Fed Up field director, said of the series of efforts by Fed banks.
In its latest critique, Fed Up called it “disappointing” that Nicole Taylor, a black woman and dean of community engagement and diversity at Stanford University whose term as director at the San Francisco Fed is soon to expire, would be succeeded on that district’s board by Sanford Michelman, a white man who is co-founder of law firm Michelman & Robinson LLP. John Williams, president of the San Francisco Fed, told reporters on Wednesday that while he has no control over the selection of directors, this board revamp “just redoubles my efforts and my team’s efforts to make sure that we are getting the voices and experiences from across the spectrum.” He added: “It’s definitely a step back in terms of what I’d like to see on our board. We’re working actively to build representation of women and minorities.”