The Federal Reserve Is Still Largely White and Male—But Pressure is Building For That To Change
Founded in 1913, the Federal Reserve sits at the highest echelon of U.S. economic policymaking. Yet in the banking system’s 105-year history, only one African-American and seven women have served as president at any of the Federal Reserve banks.
The relative absence of women and racial minorities is problematic in any industry but carries far more weight in economics, a field that wields outsize influence on public policy. Within the Federal Reserve, this lack of diversity can create blind spots on critical issues that impact historically underrepresented groups.
The economics profession has grappled with its diversity imbalance for years. Despite women earning more degrees than men and a significant uptick in graduation rates among people of color, women make up just 30% of undergraduate economics majors, while minority groups represent just 10%.
“We’re a group of social scientists and a group that’s responsible for developing economic knowledge and policy. Yet we’re pretty homogeneous when you look at it,” says Swarthmore College professor Amanda Bayer, who was brought on as a senior adviser to the Federal Reserve in 2015. “That’s going to affect the kinds of questions we ask and the kinds of answers we produce.”
Economists don’t need to look far to see the financial inequality across racial and ethnic groups: People of color are denied mortgage loans at higher rates than their white counterparts; the unemployment rate among African-Americans remains high despite a strong labor market; black-owned small businesses find it difficult to gain access to credit, and years of discriminatory practices have led to a growing wealth gap in black and Latino households.
The 2008 economic crisis provided a sobering picture of the need for diversity at the Federal Reserve. Black Americans and Latino homeowners were unfairly targeted by subprime mortgage lenders leading up to the economic downturn and were hit to a much greater degree than white Americans during the market collapse.
“If the Fed had noticed in the latter half of 2007 that Latino and African-American unemployment rates were rising, it might have understood a significant problem was on the horizon,” William Spriggs, an economics professor at Howard University, said in a 2016 statement to the Monetary Policy and Trade congressional subcommittee.
More than a decade after the 2008 recession, black, Latino and low-income Americans—already prone to financial instability—have yet to fully recover from the crisis. And with Wall Street and some economists now signaling that another recession is on the horizon, these groups are even more vulnerable.
In an effort to diversify the Fed after the financial crisis, legislators added a clause to the Dodd-Frank Act in 2010. This piece of legislation established offices for minority and women inclusion at all 12 Federal Reserve banks and required that each agency monitor its workforce and supplier diversity.
More recently, lawmakers have put pressure on the Fed to further diversify its bank presidents. In January, Representative Joyce Beatty (D-Ohio) introduced a bill that would ensure at least one racially, ethnically or gender-diverse candidate is interviewed for all presidential vacancies at Federal Reserve banks. That same month, Senator Kamala Harris introduced companion legislation in the Senate.
“It sets the stage of putting more people at the top level,” says Beatty, who chairs the House Financial Services Diversity and Inclusion subcommittee. “If you have presidents who are sensitive to cultural needs, and race and ethnicity, and diversity of thought, it trickles down … and then it just becomes a way of doing business.”
Federal Reserve bank presidents are chosen by a group of regional boards of directors. Some of these members say that certain unofficial competencies, such as prior executive experience and a Ph.D. in economics, act as a barrier to entry for women and people of color.
“This has led to some challenges given that the pipeline in this particular academic field has not mirrored the demographics of the larger population,” says Brian McNeill, a board director at the Philadelphia Reserve Bank who was involved in the search committee process for the 2015 appointment of Philadelphia Bank president Patrick Harker.
Changing these “traditional” requirements could be an effective way to broaden the talent pool. “The idea of whether all presidents should have a Ph.D. or not is something that should seriously be explored,” says Bayer. “Certainly a good number of leaders need to have that background, but there are probably other kinds of backgrounds that are equally valuable.”
Federal Reserve Banks could also extend their criteria to include those who have served in any sort of relevant leadership role, outside of the typical banking or business exec talent pool, as long as they can perform the president’s job functions.
“You have to change your mindset about what you think [are] the right criteria. But once you do that, I think what you’ll find is there are very high-quality people out there,” says Cleveland Bank president Loretta Mester.
But others aren’t convinced. While the Federal Reserve has taken steps to reduce gender, racial and ethnic disparities over the years, progress has been incremental and slow, says Maggie Corser, a research analyst at the economic and racial justice campaign Fed Up.
The nonprofit’s latest diversity analysis of all 12 Federal Reserve Bank presidents and 108 board directors found that half the current presidents are Fed Reserve insiders who have spent the bulk of their career at the banking system. At the San Francisco and New York Federal Reserve, both of which selected new presidents in 2018, the banks ultimately appointed Mary Daly and John Williams, respectively. Both Daly and Williams have spent their careers at the Fed, and directly before Williams’ appointment to the New York Federal Reserve Bank, he was the San Francisco Bank president.
This reliance on recruiting from within and selecting presidents predominantly from the financial sector, says Corser, greatly limits the Fed’s ability to become more racially and gender-diverse and shows that banks are not casting a wide enough net when looking to fill the presidency role.
A lack of diversity among the boards of directors is also cause for concern. Boards of directors advise their Reserve Bank presidents on monetary policy, provide economic information to the board of governors in Washington D.C. and act as a liaison between the Federal Reserve and the private sector. Of the 108 Reserve Bank directors, 74% are white, 62% are male and 76% come from the banking and business world, according to the FedUp analysis.
In January, the Federal Reserve appointed 28 new board directors. Of those 28 incoming members, 75% are white, 61% are male and 82% came from the banking and business sector. “That really was a missed opportunity to diversify the boards,” says Corser.
In spite of this, the Federal Reserve has made small inroads in appointing female and minority directors to its boards. From 2013 to 2019, the percentage of female board of directors went from 26% to 38%, a 12% increase. During that same time frame, the percentage of white directors fell from 83% to 74%, down 9%.
“But that’s still not representative of the entire U.S. demographic,” says Corser.
As the first African-American to lead a Federal Reserve Bank, Atlanta president Raphael Bostic hopes to see more women and minorities enter the economic field, adding that representation matters a great deal. After his 2017 appointment, Bostic recalls being inundated with emails saying, “I could never imagine that this would happen … It’s making me rethink my career.”
Noting the power of representation, Bostic says: “Diversity opens up people’s imaginations for what’s possible.”