On Wednesday, Sen. Elizabeth Warren (D-Mass), Rep. Maxine Waters (D-Calif.) and Sen. Kirsten Gillibrand (D-NY) introduced a new bill that would require the Federal Reserve to make reducing racial employment and wage gaps a central part of its mission moving forward.
The bill, which is co-sponsored by 18 other Democrats including Sen. Edward J. Markey (D-Mass.), Sen. Bernie Sanders (D-Vt.), Sen. Cory Booker (D-NJ) and Rep. Ayanna Pressley (D-Mass.), would require the Federal Reserve to have a Racial and Economic Equity Act that "minimizes and eliminates racial disparities in employment, wages, wealth, and access to affordable credit," the proposed bill says. The legislation also requires the Federal Reserve Chair to clearly identify in his or her semiannual testimony before Congress what the existing disparities are in employment, income and wealth across different racial and ethnic groups and how the Federal Reserve is using its authority to reduce these inequalities. Additionally, the bill requires the Federal Reserve to include in its Semiannual Monetary Policy Report details about recent labor force trends with "a comparison among different demographic groups, including race, gender, and educational attainment."
"The Fed can use its existing authorities to reverse the serious racial gaps in our economy, including in our current recovery from the COVID-19 crisis — and our bill will require the Fed to do so," Sen. Warren, who is a member of the Senate Banking, Housing, and Urban Affairs Committee on Financial Institutions and Consumer Protection, said in a statement. "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."
When looking at current unemployment numbers, it's clear that the Covid-19 crisis is having an impact on all American workers, but Black and Hispanic populations are being hit the hardest. In June, White Americans saw an unemployment rate of 10.1%, compared to Black Americans and Hispanic Americans who saw an unemployment rate of 15.4% and 14.5%, respectively. This disparity, according to many experts, is a direct reflection of the racial and economic gaps that already existed in America, with many fearing that the coronavirus crisis, which is disproportionately killing Blacks and Hispanics, will only deepen this divide.
"As the Covid-19 pandemic crisis and its economic impacts disproportionately affect communities of color, and communities around the country march in the streets for justice, the Federal Reserve must do everything it can to ensure the recovery is equitably shared," Congresswoman Maxine Waters, who is chairwoman of the House Committee on Financial Services, said in a statement.
If this bill gets passed in Congress, it will be the first major change to the Federal Reserve's mandate since 1977, reports The Washington Post.
While the proposed bill has received some pushback from critics who feel that the responsibility to close these gaps should not be solely on the Federal Reserve, Warren, Waters and Gillibrand's legislation has been echoed by the sentiments of economists including Janelle Jones and presidential candidate Joe Biden's chief economist Jared Bernstein. In a June 2020 op-ed for The Washington Post, Jones and Bernstein argued that the Federal Reserve does in fact have the power to fix these disparities by promoting financial literacy, tracking the economic stability of vulnerable families and providing greater access to affordable capital for disinvested communities. Jones and Bernstein also argue that closing these racial and economic gaps "does not challenge the Fed's [current] mandate for full employment at low, stable inflation," but rather call for the Fed to expand this mandate so that it includes "a broad group of working people who have long been left behind based not on any economic rationale but on the legacy of systemic racism."
"A hands off approach to addressing institutional racism is unacceptable," Sen. Gillibrand said in regards to the Federal Reserve's role in fixing these disparities. "This legislation will take the long overdue step of requiring the Federal Reserve to use its power to directly combat systemic racism in our economy."