Congressional Democrats have introduced new legislation to reduce racial inequality in the United States economy.
The Federal Reserve Racial and Economic Equity Act requires the central bank to take action that will minimize and eliminate racial disparities in employment, wages, wealth, and access to affordable credit.
It would be the first major change to the Fed’s mandate since 1977 and would significantly alter the central bank’s focus.
The Fed’s current mandate from Congress is to keep prices stable and maximize the number of Americans with jobs.
The legislation is not expected to pass Congress while Republicans control the Senate, it signals a growing consensus among Democrats that the Fed has played a role in deepening inequality and needs to be part of the solution to close gaps in employment and pay.
The legislation on Wednesday August 5, 2020, was written by Sen. Elizabeth Warren, Sen. Kirsten Gillibrand and Rep. Maxine Waters.
The bill is co-sponsored by 18 other Democrats, including former presidential candidates Sens. Bernie Sanders and Cory Booker.
“The Federal Reserve Racial and Economic Equity Act creates a new racial justice mission at the Fed to eliminate racial and economic disparities in all of its work,” said Waters in a statement.
The legislation will also look into the disparities in income, wealth and employment, as well as what the Fed is doing to reduce and eliminate those disparities when testifying before Congress.
There’s a gaping divide in how much wealth Black families have, compared with White families. Wealth takes into account income, savings, homeownership, stock and bond ownership, and other assets.
As of 2016, the most recent year for which data is available, the typical White household had more than 11 times the net worth of a Black household. The wealth gap remains as large as it was the late 1960s.
Critics of the proposal say the Fed already has clear goals to help every American and that the central bank’s tool kit is too limited to address long-standing inequalities in society.
The Fed’s main policy action is to set interest rates, which makes it cheaper or more expensive to borrow money to buy a home, purchase a car or start a business.
“Isn’t this the job of Congress and, quite frankly, all of us?” tweeted Constance Hunter, chief economist at KPMG.
“To put this on the Fed seems to set them up for failure unless the entire rest of the system is organized to help achieve this goal,” he added.
But Warren and Waters say the Fed can do more to reduce inequalities.
For example, economists like Biden adviser Jared Bernstein and Janelle Jones have argued that the central bank has raised interest rates too quickly in the past, hurting the job prospects of Black and Hispanic workers, who are often the last to get hired.
“Systemic racism and inequality is not something that happens on its own. It is a result of specific policy choices and the Fed must take deliberate action to fix it,” Warren said in a statement.
Source: NYP and News Agency