Democrats in the House and Senate banking committees unveiled legislation on Wednesday that would make unprecedented changes to the mission of the U.S. Federal Reserve, creating a mandate to reduce racial disparity across the economy.
The Federal Reserve Racial and Economic Equity Act would require the Fed to operate in a way that “minimizes and eliminates racial disparities in employment, wages, wealth, and access to affordable credit.” The bill would also add reporting requirements to the Fed chair’s semiannual testimony before Congress and to the semiannual monetary policy report regarding racial and ethnic disparities, and what the Fed is doing to reduce them.
“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,” said Sen. Elizabeth Warren (D.-Mass) who introduced the legislation along with House Financial Services Chairwoman Maxine Waters (D-Calif.) and Sen. Kirsten Gillibrand (D-N.Y.). “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.”
If enacted, the law would create an entirely new dimension to the Fed’s goals of maximizing employment and stabilizing prices, which at present take into account only broad macroeconomic factors.
The bill has 17 cosponsors, 11 in the House, including several members of the Financial Services Committee, and six in the Senate, all of whom are Democrats. While the legislation is unlikely to become law during this session of Congress, given the lack of Republican cosponsors, and that only three months remain before the November election, it could be a harbinger of things to come should Democrats win control of the House, Senate and presidency.
Democratic lawmakers have come out swinging recently against alleged abuses in the financial sector. Warren was one of three senators who recently accused nonbank lenders Upstart and SoFi of discriminatory lending practices.
Many major banks and financial institutions have made pledges toward racial equity in light of the Black Lives Matter movement, and the protests following the murder of George Floyd. HSBC established a goal of doubling its Black senior staff by 2025, and to alter its hiring processes to root out systemic bias. Visa and ManuLife created diversity-based hiring targets, and Wells Fargo said it would tie executive pay to diversity hiring targets.