This op-ed argues that the Fed could be turned into an institutional force for economic progress.
Imagine if your city could buy up vacant houses and rent them to community members at a reasonable price. What if your city could afford to retrofit local infrastructure to protect communities from future flooding? And imagine if our collective physical safety and economic wellness was safeguarded because the government chose to prioritize us over Wall Street.
This is not an impossible dream — and we’re not actually that far from its reality.
In the next few weeks, President Biden will make a decision that could shape his legacy as a champion for racial justice: choosing the next chair of the Federal Reserve. The Federal Reserve has traditionally been an arcane body, little-known to the public. But now President Biden has an opportunity to turn the Fed, as it’s known, into an institutional force for economic progress for BIPOC communities — if only he has the courage to seize the moment.
What is the Fed and why does it matter?
The Federal Reserve is the government’s bank for the banks, established in 1913 by then-president Woodrow Wilson after a long series of bank failures, panics, and recessions. Today the Federal Reserve’s job is to maintain a strong national economy for the public interest. It does so, in part, through a so-called dual mandate: maximizing employment to a level so more people secure steady work and pay, and ensuring that what you pay for goods and services stays stable. The Fed also has the authority to carry out a number of other important functions for our economy, such as regulating banks and protecting consumers.
The Fed was the brainchild of six white men who met on a private island owned by banker J.P. Morgan. More than 100 years later, not much seems to have changed with its leadership: The current Fed board is entirely white, majority Republican, and has a deep history in the private sector. It’s little wonder, then, that the Federal Reserve has repeatedly used its massive toolbox to favor corporate America and Wall Street, instead of for struggling workers, climate justice, or municipalities.
In 2008, we were two young women of color entering the workforce during the Great Recession. At the time, we didn’t know that what we were encountering was a complicated system that tied our financial futures to racialized subprime mortgages. We remember watching then-Fed chair Ben Bernanke prioritize bailing out big banks while our loved ones lost their homes and jobs. Now we are watching history repeat itself once again, as the current Fed props up corporate America while the COVID pandemic further devastates Black and brown communities.
The Fed is beholden to Wall Street
Its current chair, Jerome Powell, often portrays the Fed as having limited influence, despite it being one of the most powerful economic institutions. The Fed has extraordinary authority to address and change the course of income inequality, unfair lending practices, and even the climate crisis. So why won’t the current Fed use its powers to do more good?
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We believe that answer lies in Powell’s history. Before coming to the Fed, he was a partner at the Carlyle Group, a private-equity firm known for buying up companies and making them “profitable” by laying off workers and breaking up unions. When corporate profitability is placed above the needs of the worker, inequality thrives.
Similar to 2008, we’re seeing Wall Street again come out on top, this time during a pandemic. Amid mass unemployment and small business closures, the wealth of Wall Street billionaires has surged. Under Powell’s watch, the Fed has directed large sums of money toward banks and mega-corporations.
During Powell’s tenure, bank mergers surged while many of the majority-Black cities hardest hit by COVID have been left out of a direct lending program from the Fed that didn’t appear to adequately account for which municipalities needed the most help. Federal-aid funded programs that were meant to uplift small businesses and protect vulnerable workers were exploited by large companies that have clubby relationships with national banks. The Fed didn’t — and doesn’t — do enough to regulate those relationships. This is how generational racial and economic disparities deepen.
Climate change will only make these disparities worse, especially for frontline communities. For years, climate activists have demanded aggressive action to protect humanity. Only recently has the Fed started taking baby steps to address climate change; this was three years after other international central banks took action, leaving the U.S. trailing behind other countries.
The Fed’s inadequate action on climate change under Powell has been noted by Democratic lawmakers, such as Reps. Ayanna Pressley, Rashida Tlaib, and Mondaire Jones, who recently introduced the Fossil Free Finance Act. Jones told The Nation, “As climate disasters grow in frequency and intensity, we can no longer afford to stand by while big banks and other financial institutions invest trillions in the companies fueling the climate crisis.”
Before 2008 the Fed failed to take speculative mortgages by big banks seriously, and now it is not doing enough to stop the financing of fossil fuels, which are decimating our planet. It feels like our government has learned nothing from the Great Recession. So where is the lifejacket in this endless sea of troubles?
What gives us hope is thinking about the women who could potentially take over as leaders of the Federal Reserve and shape it as a real force for racial and climate justice. We’re most excited about Lisa Cook, a Michigan State University economist focused on Black economic history, and Sarah Bloom Raskin, a lawyer and former Fed governor who has been sounding the alarm on climate change.
These are leaders who have the creativity and willingness to center economic policymaking on communities that are still reeling from 2008 and are on the front lines of climate change. If President Biden really wants to “build back better,” he’ll take this opportunity to shape the Fed into a force for justice for Americans who have been excluded for too long — a Federal Reserve that works for all of us.