Office of U.S. Senator Elizabeth Warren (D-Mass.)
United States Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing, and Urban Affairs Committee Subcommittee on Financial Institutions and Consumer Protection, Representative Maxine Waters (D-Calif.), Chairwoman of the House Financial Services Committee, and Senator Kirsten Gillibrand (D-N.Y.) introduced the Federal Reserve Racial and Economic Equity Act to require the Federal Reserve to use its existing authorities to close racial employment and wage gaps and report on how the gaps change over time. The announcement follows the House Financial Services Committee passage of the bill.
"The Fed can use its existing authorities to help 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 Senator Warren. "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."
"The job of the Federal Reserve is to oversee our nation's economy," said Chairwoman Waters. "In that role, the Fed has a responsibility to ensure the voices of communities are heard and to play a role in addressing racial and economic inequality. Over the past year, Fed officials themselves have recognized they have a role in addressing the racial inequality that has plagued our economy for far too long. This extends beyond the Fed's monetary policy to things like their oversight of the payments system and their review of bank mergers. This bill requires that the Fed provide labor force trends and plans to ensure racial and economic justice is included in decision making. Long before the pandemic hit people of color the hardest, my colleagues and I had called on the Federal Reserve to fix systemic barriers for candidates of color within its labor force. The current crisis has only further highlighted the fact that we need all hands on deck, including the Federal Reserve, to take action to address racial equity."
"Not only did the pandemic reveal the substantial racial gaps in our economy, but its disproportionate harmful impact on communities of color deepened the divide, especially in our financial system. As we rebuild our economy, the government has a responsibility to address racial disparities in wages, economic opportunity and wealth. Now is the time to act and to give the Federal Reserve the explicit mission of combating institutional racism in our economy." said Senator Gillibrand.
Gaps in economic outcomes for individuals of different races and ethnicities have persisted throughout different economic cycles*. In January 2020, for example, the white unemployment rate was 3.1 percent, while Black unemployment was nearly double at 6.0 percent and the Hispanic unemployment rate was 4.3 percent. These disturbing gaps have been heightened by the COVID-19 pandemic.
The Federal Reserve Racial and Economic Equity Act:
- Makes Reducing Inequality Part of the Fed's Mission: This bill adds a new section to the Federal Reserve Act that would require the Fed to carry out its functions in a way that "minimizes and eliminates racial disparities in employment, wages, wealth, and access to affordable credit."
- Ensures that Racial Economic Disparities are Not Ignored: This legislation requires the Federal Reserve Chair to identify in his or her semiannual testimony before Congress: (1) the existing disparities in employment, income and wealth across racial and ethnic groups and (2) how the Fed is using its authorities to reduce these disparities.
- Requires Robust Reporting on Disparities in Labor Force Trends: This bill requires the Fed's Semiannual Monetary Policy Report that the Fed releases in conjunction with the Chair's testimony to include recent labor force trends with "a comparison among different demographic groups, including race, gender, and educational attainment."
The legislation is co-sponsored by Senators Richard Blumenthal (D-Conn.), Edward J. Markey (D-Mass.), Chris Van Hollen (D-Md.), Dianne Feinstein (D-Calif.), Raphael Warnock (D-Ga.), Jack Reed (D-R.I.), Bernie Sanders (I-Vt.) and Catherine Cortez Masto (D-Nev.).
In September 2020, Senator Warren urged Federal Reserve Chairman Jerome Powell to use the various tools the Fed has at its disposal to help eliminate racial disparities. In June 2020, Senator Warren questioned Fed Chair Powell at a Senate Banking hearing on racial disparities in the COVID-19 economic recovery, stating "The minute jobs start recovering for white Americans, we can't just say the problem is over." After Chair Powell confirmed to Senator Warren that the racial gaps in COVID-19 recovery are not a "not a healthy feature of our economy," she questioned him on the impact of the Fed's policy decisions on racial inequality, including if the Fed currently considers the impact of its monetary policy decisions on racial inequality and if it considers whether the actions it takes with respect to payments, bank regulation, and the use of its emergency authorities under section 13(3) of the Federal Reserve Act affect different racial groups in different ways.