The House of Representatives approved a bill on June 15 that would require the Federal Reserve to address social justice concerns, expanding the scope of the central bank’s mandate beyond its traditional priorities of price stability and economic well-being.
The House voted in favor of H.R. 2543, the Racial and Economic Equity Act, which would amend the Federal Reserve Act of 1913 to expand the mandate of the central bank, which has traditionally consisted of maintaining price stability and full employment, adding a clause which would oblige the Fed to promote “racial and economic justice.”
“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall exercise all duties and functions in a manner that fosters the elimination of disparities across racial and ethnic groups with respect to employment, income, wealth, and access to affordable credit,” reads the proposed section 2C of the Federal Reserve Act.
The bill also introduces new provisions for “inclusive lending” practices, promoting diversity in financial institutions, and reducing sexual and racial discrimination in housing, all of which the Federal Reserve would be responsible for under the new rules.
The bill, which was sponsored by Rep. Maxine Waters (D-Calif.) and five other Democrats, passed the House by a slim margin of 215–207.
Though the bill has the support of President Joe Biden, who campaigned on expanding the Fed’s mandate to include provisions for social justice, analysts consider it unlikely to pass through the Senate, with the analytics company Skopos Labs giving the bill a mere 11 percent chance of being enacted into law.
Nonetheless, the Racial and Economic Equity Act reflects the growing calls from progressives to make the Federal Reserve more proactive in the pursuit of left-leaning social justice causes.
Powell Pressured by Democrats
These concerns were aired earlier in 2022 during the most recent confirmation hearings of Federal Reserve Chairman Jerome Powell, who faced questions from progressive Democrats about his commitment to using his position to advance equality for women and racial minorities.
“Do you agree that when all workers, including women, including black and brown workers, are able to fully participate in the workforce, that our economy grows, and do you think that it’s important for the Fed to understand and proactively, proactively address racial and gender disparities in wealth and income and employment in our country?” asked Sen. Sherrod Brown.
Powell’s response emphasized his focus on economics over politics, and the Chairman claimed that sound monetary policy would have distributional benefits for marginalized groups, though he maintained that racial justice and climate regulation were outside the scope of his authority.
“As the labor market tightened, the benefits began to go more broadly to those at the lower end of the income spectrum and to groups that have been more marginalized from an economic standpoint. … Our tools do not generally have direct distributional effects, but I do think that we see now the great benefits that a strong labor market can bring right across the whole population and the whole economy.”
Critics warn that binding the Federal Reserve to activist concerns could undermine its crucial political independence, with potentially disastrous economic consequences to follow.
While the bill under consideration is unlikely to go into law in this session, it is nonetheless demonstrative of growing pressures on the Federal Reserve to promote political ends concerning racial, sexual, and climate issues, among others.