As U.S. President Joe Biden assesses whether to reappoint Federal Reserve Chair Jerome Powell and nominate as many as three others to the central bank's powerful board, he has the opportunity to revamp a leadership team long criticized for being too white and too male.
The stakes are high for an institution that has failed to reflect the racial, ethnic and gender makeup of the United States, and recently promised to do better. The Fed sets monetary policy, a primary lever in controlling the cost of money and the availability of credit, in a nation where the wealth held by the median white household is nearly eight times that of the typical Black household.
There are seven seats on the Fed Board of Governors, six of which are currently filled. Just two of the six governors are women, and all of them are white. There have been just three Black board members in the Fed's nearly 108-year history. Powell's predecessor, Janet Yellen, now Treasury Secretary, was the first-ever woman leader of the Fed.
In addition to deciding about Powell, whose term ends in February, Biden will have the chance to appoint a new vice chair for supervision, which is a top regulatory role overseeing banks, a separate vice chair who works closely with the Fed chair, and the open spot on the board.
He could, theoretically, create a Fed board that has more women than men for the first time in history, a nod to the country's 51% female population. Or he could create one that mirrors the United States' 40% minority population.
"It's a huge opportunity that Biden has to shape the personnel and the policy of the Fed both at the top and all the way down," said Claudia Sahm, a former Fed economist and a senior fellow at the Jain Family Institute.
BRAINARD, COOK, SPRIGGS
Before President Donald Trump, Fed chairs were generally reappointed to another four-year term if they wished to serve, as part of bipartisan tradition. Trump broke tradition by dismissing Janet Yellen.
Biden has been under pressure by some Democrats not to renominate Powell, a Republican they see as insufficiently tough on regulating banks and in addressing climate change. However Powell has been broadly praised for the Fed's swift and sweeping response to the COVID-19 pandemic, enjoys bipartisan support in Congress and is reportedly backed by Yellen. During his first term he has called attention to racial inequities and the outsized effects of the pandemic on women and minorities.
Democrats' narrow control of the Senate makes any switch at the top uncertain, particularly to a more progressive chair who Republicans are likely to oppose stridently.
If he keeps Powell, Biden is expected to nominate women and non-white appointees to other roles at the Board, assuming Vice Chair Randal Quarles and Vice Chair Richard Clarida, both Trump appointees, are replaced when their terms expire in October and January, respectively.
Among a diverse group of candidates, Biden is said to be considering Lisa Cook, a Michigan State University economics professor who has written extensively about racial disparities, for one of the Board seats. William Spriggs, an economics professor at Howard University and the chief economist for the AFL-CIO, may also be in contention. It's been 15 years since the Fed has had a Black board member.
Sarah Bloom Raskin, formerly a Fed governor and Treasury official, is also reported to be on some lists for a vice chair position.
There may also be promotions from within. Fed Governor Lael Brainard, appointed by Obama and favored by some Democrats advocating for change, could be tapped to either replace Powell or become vice chair for supervision when the latter slot opens up.
The White House declined to comment. Diversity is a key consideration for the administration's postings, a person familiar with the matter said.
FED'S SLOW PROGRESS
If Biden doesn't appoint more people of color and women to the Board of Governors, it would be a setback for the central bank after slow but steady progress over the last few years in diversifying its 12 regional Fed banks.
It could also cause political blowback for a president who has promised to promote diversity at all levels of government.
The Fed has stated "diversity and inclusion is of the highest priority for the Federal Reserve Board."
Almost all Fed policymakers now agree that a wide range of backgrounds and views leads to better decision-making in monetary policy and understanding of the U.S. economy as a whole.
In 2015, Neel Kashkari was the second Indian-American to lead a regional bank, at the Minneapolis Fed. Raphael Bostic was chosen to head up the Atlanta Fed in 2017, the first Black regional president in history. Bostic, and San Francisco Fed chief Mary Daly, appointed in 2018, are the first two openly gay regional bank presidents.
In the next two years a quarter of the 12 Fed bank presidents will reach mandatory retirement age. Currently seven of them are white men, three are white women, and two are non-white.
Biden's choices could help the central bank pay closer attention to racial and gender disparities in the labor market and the economy overall, especially as it recovers from the pandemic, analysts say.
"If they get it right, they have a Fed Board... that looks and thinks and understands the world through the eyes of working Americans," said Benjamin Dulchin, director of the Fed Up Campaign at the Center for Popular Democracy, a progressive advocacy group.