The lack of diversity at the Fed has come under renewed scrutiny because of an unusual situation happening in 2018: The top three leadership positions at the Fed — the chair, the vice chair and the head of the New York Fed — are all turning over. There was hope this would be a moment to increase the Fed's diversity, but all three positions are on track to be filled by white men with traditional economic and banking backgrounds.
Jerome “Jay” H. Powell, took over in February as the new Fed chair, replacing Janet L. Yellen, the United States' first female Fed chair. The other two positions have not yet been filled, but the leading candidates are both Caucasian men.
“This is not enough diversity,” said Andrew T. Levin, a former economist at the Fed who is now a professor at Dartmouth College. “We need more people sitting at the table who are familiar with the challenges of ordinary Americans.”
The United States' population is about half male and 61 percent white, according to the census. The Fed is not representative of the U.S. population, although the same can be said of Wall Street, corporate boards, top economics departments at universities, Congress and the senior White House team.
Fed officials often say they want to increase diversity in their ranks — by gender, race and professional background — but they argue that it's difficult to find qualified candidates willing to serve. Turnover at the Fed is also low, meaning it takes a long time to change personnel.
While some progress has been made on diversity, it has been slow and appears in danger of regressing. In March 2008, the Fed's leadership was 89 percent male and 100 percent white.
President Trump appointed the Fed chair and is soon expected to nominate a vice chair, but he has no say over the New York Fed post, which is one reason many Democratic lawmakers and advocates are focused on that appointment.
Senator Cory Booker (D-N.J.) had blunt criticism for the Fed in an op-ed this week: “The New York Fed has never had a woman or a person of color at its helm, and the Federal Reserve Bank only just last year added its first black regional bank president. If we’re serious about creating an inclusive and sustainable economy, no one should be left on the sidelines.”
The Fed chair post: Yellen was forced out by Trump in February. Despite having arguably one of the more successful tenures in Fed history, overseeing a period of rapid job growth and low inflation, Trump replaced her with Powell, a well-respected lawyer who had served for several years as a Fed governor under Yellen. Powell is a white, male Republican, although he has a reputation for working across the aisle.
In his years at the Fed, Powell was responsible for working on the selection of various regional Fed presidents. He has publicly stated a commitment to diversity and oversaw the selection of the first African American — Raphael Bostic — to head a regional Fed bank. (Bostic leads the Atlanta Fed.)
The New York Fed president: After months of searching, the leading candidate to be head of the New York Fed is John C. Williams, according to people familiar with the search who spoke on the condition of anonymity to discuss the internal deliberations. The Wall Street Journal first reported the likely appointment over the weekend.
Williams has an impressive track record as a research economist, and he has been head of the San Francisco Fed since 2011. But there is frustration among many Democrats and female and minority economists that the process to fill openings such as the New York Fed job isn't transparent and continues to favor certain types of candidates.
“The Fed made a big deal out of prioritizing diversity in this search, yet if it's John Williams, one has to scratch their head how this opaque process yields a white male after all of that,” said Sarah A. Binder, a George Washington University professor.
Binder and Mark Spindel, founder of investment firm Potomac River Capital, have created a database of all the Fed leaders from 1935 to present. They found the New York Fed and five other regional Fed banks have always been led by white men.
The Fed vice chair: Trump gets to nominate the vice chair of the Fed, who will then need to be confirmed by the U.S. Senate. Although Trump and his team did consider at least one woman for the job, the leading candidate right now is Richard Clarida, according to people familiar with the search who spoke on the condition of anonymity to discuss the internal deliberations.
Clarida is a Columbia University economics professor and a managing director at PIMCO, one of the world's largest bond firms. Clarida is well liked in economic circles. He is also a white male.
Williams and Clarida are not yet official nominees, meaning their appointments could still change. Williams has vocally pushed for more diversity at the Fed.
“The Federal Reserve in particular is in the spotlight for a lack of diversity in our senior ranks and on our boards of directors, and rightly so. Our record is not what it should be, and change has been too slow at best, or, sadly, in some instances, nonexistent. ... As leaders of our organizations, we must hold ourselves accountable and not make excuses or look for others to tackle this problem,” Williams said in 2016 in a speech titled “Diversity and Inclusion Without Excuses.”
There are 19 key leadership positions at the Fed: seven governors that sit in Washington and are nominated by the president and confirmed by the Senate in a process similar to Supreme Court justices, and then a dozen regional Fed banks across the country, each headed by a president chosen by that region. Of the 19 positions, 15 are currently filled and 10 are filled by white men.
In addition to looking at gender and racial diversity, Fed Up, a coalition of grass-roots groups and labor unions that has been pushing the Fed to keep rates low until more Americans get jobs and better pay, has argued that the Fed has too many executives and former Wall Street bankers. Nearly 80 percent of Fed governors, regional presidents and members of the boards of the regional Fed banks come from banking or business backgrounds. The coalition wants to see more labor union leaders, academics and nonprofit executives on Fed boards.
Fed Up looked at the data for each of the 12 regional Fed banks and found that San Francisco, where Williams is president, has one of the least diverse boards by gender, race and occupation.
“Despite covering some of the most demographically diverse counties in the United States, 100 percent of the San Francisco Fed's Board of Directors come from the banking and business sections. The directors are 78 percent white and 78 percent male,” Fed Up stated in a recent report.
The New York Fed has undertaken numerous efforts to make the search for its new leader as diverse as possible. A labor union leader — Sara Horowitz — headed up the search committee, which hired Bridge Partners, an executive-search firm that specializes in finding diverse candidates, to help broaden the pool. But questions are likely to linger about what else could have been done, especially if Williams is the nominee.
When Powell, the Fed chair, testified before Congress in February, the top question from Democrats in the House was about why the Fed isn't doing more to increase diversity.
“We have learned to tolerate African American unemployment being twice that of whites,” lamented Rep. Al Green (D-Texas). “That which we will tolerate, we will not change.”
Sen. Elizabeth Warren (D-Mass.) has questioned Williams's fitness for the job and demanded that he and the search committee testify before the Senate Finance Committee. Her primary concern is that Williams led the San Francisco Fed during a period when Wells Fargo was committing numerous consumer abuses. She says he should have been a better watchdog, although the regulation of big banks is not a core responsibility of regional Fed presidents, especially since the Dodd-Frank financial reforms.