When Raphael W. Bostic, the first Black president to lead one of the Federal Reserve’s regional banks, published a searing essay during this summer’s Black Lives Matter protests calling for an end to systemic racism, he spurred an urgent discussion around the century-old institution about how to build an economy that includes all Americans.
For Bostic — widely seen as one of the most distinguished leaders in economics, and who has also been subjected to indignities like being stopped by police for no reason — grounding his vision in the country’s history of injustice was key to focusing attention on how those structures persistently affect people’s lives today.
“I’ve been Black all my life,” Bostic told The Washington Post. “And when you’re Black in America, there’s just a bunch of things that are going to happen.”
But just how the Fed should be narrowing racial and economic gaps is not completely clear.
“Part of what is needed, and what we’re wrestling with, is rethinking exactly what our mandate means,” Bostic said in an interview earlier this summer. “The important thing about our mandate is that, to me, it says we should be making sure the economy works for everyone, because that’s the way you get to the largest maximum employment. That’s the way you get to the strongest, most resilient economy.”
Under the central bank’s “dual mandate,” Fed leaders are tasked with maintaining stable prices and maximizing the number of Americans with jobs. Increasingly, liberal economists and Democratic lawmakers are calling on the Fed to target the Black unemployment rate, which is historically higher than the overall unemployment rate, to achieve a truer gauge of how Americans fare in the economy. In July, while the overall unemployment rate was 10.2 percent, it was 9.2 percent for White workers and 14.6 percent for Black workers.
Fed leaders broadly agree that discrimination and racial inequality should not exist in the economy. But the Fed’s tool kit is limited. Its main instrument of monetary policy is setting interest rates, which broadly influence the economy and cannot be engineered to target specific slices of the population.
Focusing on the Black unemployment rate would not capture disparities affecting other racial groups, officials say. Even the vast portfolio of emergency programs launched to combat this recession cannot home in on unemployed Black workers or Latino-owned small businesses, for example.
Bostic hesitates to point to a specific, short-term policy target, calling instead for deeper thought and discussion about historic racism and inequality and how that legacy still stands today. He notes that the Fed’s tools are “really broad, blunt instruments” that brush over the economy as a whole.
“I’ve been doing my own soul searching around what a statistic or sufficient statistic might look like. I’ve been actually thinking about this long before I got into this job,” Bostic said in a July webinar sponsored by the Center on Budget and Policy Priorities and Groundwork Collaborative.
“I haven’t really gotten my head around how should we think about that,” he added. “But I think it’s something I’m grappling with.”
Neel Kashkari, president and chief executive of the Federal Reserve Bank of Minneapolis, told The Post he was skeptical that the Fed could specifically target the Black unemployment rate. Instead, Kashkari said having a better understanding of racial gaps — whether through the Fed’s monetary policy, vast research operations or supervision over American banks — will ultimately “influence our broader assessment of if there is slack in the labor market."
“If our dual mandate, which is our holy grail, is maximum employment and stable prices, to successfully achieve that we need to better understand these labor market disparities so we do not shortcut the recovery,” Kashkari said.
Since the start of the coronavirus recession, Federal Reserve Chair Jerome H. Powell has repeatedly acknowledged that job losses have fallen disproportionately on low-income communities and workers of color, saying in June that the “pandemic has again exposed a range of troubling inequalities, most of them of long standing.”
After nationwide protests in the wake of George Floyd’s death in Minneapolis police custody, Powell said, “There is no place at the Federal Reserve for racism and there should be no place for it in our society.”
“These principles guide us in all we do, from monetary policy, to our focus on diversity and inclusion in our workplace, and to our work to ensure fair access to credit across the country,” Powell said in June. “We will take this opportunity to renew our steadfast commitment to these principles.”
Closely watched by economists and lawmakers, these debates reflect a profound challenge — and opportunity — for the Federal Reserve. How its leaders navigate this moment could matter not only for the next chapter of the Fed’s history, but also for an economy that has always left people behind.
“The Fed is signaling that you can’t be talking seriously about monetary policy if you don’t also address racial gaps,” said Janelle Jones, managing director for policy and research at the Groundwork Collaborative. “And that is huge.”
Fundamental to Bostic’s argument is that the country’s racial economic gaps were cemented over centuries. In his essay, Bostic called out structural racism as “a yoke that drags on the American economy” and called on the Fed to “reduce racial inequities and bring about a more inclusive economy.”
That damaging legacy was pushed to the fore during summer-long protests around police brutality and systemic discrimination. At the same time, the coronavirus pandemic has disproportionately harmed Black and brown Americans and ripped open health disparities in communities of color.
Last year, Fed officials hosted a “Fed Listens” tour that was meant to give an on-the-ground view of how the labor market and interest rates were affecting Americans. Fed leaders were told that in many communities of color, full employment was still far off. Even while the overall unemployment rate ticked lower and lower, it took much longer for many minority communities to feel the thrust of a decade-long expansion.
Then, when the economy bottomed out in March and April and millions of Americans were suddenly kicked out of the workforce, those job gains were wiped clean. In a June hearing before the Senate Banking Committee, Powell noted that “job losses of African Americans, Hispanics and women have been greater than that of other groups. If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.”
That bleak reality has fueled calls for the Fed to focus on the Black unemployment rate and expand its reporting on racial economic gaps.
Joe Biden, the Democratic nominee for president, is calling for an amendment to the Federal Reserve Act that would require the Fed to regularly report on racial gaps and explain what the Fed is doing to close them.
“It is about justice,” Biden said in a speech last month. “For generations, Americans who are Black, brown, Native American, immigrant, haven’t always been fully included in our democracy or our economy.”
Earlier this month, congressional Democrats introduced legislation that would make reducing racial inequality an official part of the Fed’s mission. If passed, the bill would mark the first major change to the Fed’s mandate since 1977.
Jones, of the Groundwork Collaborative, said the Fed could also focus attention on systemic gaps through its vast research operations, which produce troves of data used by economists, policymakers and researchers. Jones also rejected the idea that the Fed cannot specifically target the Black unemployment rate.
It would be hard, but not impossible, she said.
“We’re willing to rewrite the rules to come up with new and wild procedures to make sure the wealthy and corporations get what they need,” Jones said. “I’m not sure why we lack the imagination when we think about a different group of folks. … We haven’t done it, so we think it’s impossible, instead of thinking, ‘We haven’t done it, why not?' ”
Still, it is unclear how the Fed could target the Black unemployment rate through its conventional tools, like lowering interest rates or making bond purchases. As the overall unemployment rate reached historic lows just before the pandemic, Fed officials leaned on the idea that communities of color would also benefit.
“What we learned during the last long expansion is that a tight job market is probably the best single thing that the Fed can do to support all low- to moderate-income communities,” Powell said during a Senate hearing in June.
But even when the White unemployment rate was 3.1 percent in February, the Black unemployment rate hovered at 5.8 percent.
Low interest rates, while they can reduce unemployment, often boost the stock market and asset prices, which further benefits White Americans who are more likely to hold investments.
“What has become clear is that, that rate in and of itself, is not sufficient, because of the experience through this covid crisis has made it clear that even though people have been and got employed, they were the least securely employed,” Bostic said in last month’s webinar. “And so we need to be thinking not just about the number, but also the nature of that employment and how that plays out.”
Bostic says it is also important to make sure businesses have connections with chambers of commerce and local business leaders and that the entire Fed system pushes for more diverse recruitment and hiring programs. Just within the Atlanta Fed, Bostic said his staff is looking at whether its reimbursement policies, which require personal payment up front, squeeze some employees more than others. The Atlanta Fed is also looking at its salary structures on an ongoing basis to account for different costs of living in Miami vs. Birmingham, Ala., or elsewhere within the bank’s district.
Bostic was raised in New Jersey by Caribbean immigrants and studied psychology and economics at Harvard University before earning an economics PhD at Stanford. He became an economist at the Fed board in Washington in 1995 and honed an expertise in the Community Reinvestment Act. In 2001, he joined the faculty of the University of Southern California as a professor specializing in homeownership, housing finance and neighborhood change. Bostic was also a top adviser at the Department of Housing and Urban Development during the Obama administration. He took the helm of the Atlanta Fed in 2017.
These credentials stand out among the Fed’s regional bank chiefs. In recent years, White men without PhDs in economics regularly rose to the ranks of Fed regional presidents, as former Minneapolis Fed president Narayana Kocherlakota noted in a recent Bloomberg op-ed. Moreover, in the Fed board’s entire history, only three governors have been Black.
“People without economics degrees can be great Fed officials, as Chair Jerome Powell has demonstrated,” Kocherlakota wrote. “My point is that many similarly qualified Black people can be outstanding Fed leaders. The evidence suggests that the appointment process systematically excludes these candidates.”
Part of Bostic’s perspective comes from what he sees within his district, which spans Alabama, Florida and Georgia and parts of Louisiana, Mississippi, and Tennessee. From the newly built high-rises in downtown Atlanta to poorer, rural pockets of the South, Bostic said his travels around the district have only made clearer racial and economic disparities “are present everywhere we go.”
Those discussions are taking place against the backdrop of broader conversations about how racism and discrimination are acknowledged by the entire economics profession.
In a recent open letter, William Spriggs, chief economist to the AFL-CIO and an economics professor at Howard University, wrote that the “overwhelming majority of explorations of racial disparities in economic outcomes remains deeply tied to that view of race as an exogenous variable."
“In the hands of far too many economists, it remains with the assumption that African Americans are inferior until proven otherwise,” Spriggs wrote.
In a June congressional hearing, Sen. Sherrod Brown (D-Ohio) asked Powell about Spriggs’s letter and whether the country had “failed to grapple with the fact that much of the economic inequality is a direct result of institutional racism.”
“His letter, as I read it, really calls on the [economics] profession to examine whether systemic racism is reflected in the empirical work of economists,” Powell responded. “I think it’s thought-provoking, and I would just agree there’s a lot of work left to do, both in the economics profession on these issues, and I hope recent events are pushing all of us to try to do better.”
Battling this recession, the Fed has bought up corporate debt and rolled out emergency lending programs to municipalities and midsize businesses. The programs have embedded the Fed in entirely new corners of the economy, and they will test its ability to ensure its interventions do not pick winners and losers.
Lawmakers and economists have frequently challenged the Fed, arguing that its moves to flood the markets with liquidity and purchase corporate bonds only widen wealth inequality, particularly as millions of unemployed and low-income Americans are suffering. Fed leaders often say the moves are necessary to stabilize jobs and help prevent an even deeper economic and financial crisis.
“It’s hard to imagine” that the Fed could deploy an emergency facility specifically for minority businesses, Bostic told The Post. But there is room for the Fed to think seriously about how to make sure its programs benefit “as many minority businesses as soon as possible” and to consider which groups have been reached before closing a program down.
Ultimately, though, Bostic concedes that the Fed’s tools can only do so much. Tackling this country’s long-standing disparities, or even getting the country to an economic recovery, cannot be left to the Fed alone, he says.
“This is such a multidimensional issue,” Bostic said. “[We have to] keep talking about this and make sure that people don’t have an opportunity to forget that this is an important issue that is holding back our country, and that this is an imperative that we all need to engage with and move forward."