The Fed and the Racial Wealth Gap | Dollars & Sense – Dollars & Sense – DC Initiative on Racial Equity
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Will a Fed racial inequality mandate improve monetary policy?

BY JOHN MILLER | January/February 2022

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org

This article is from the
January/February 2022 issue.

President Biden ran on adding a mandate for “racial equity” to the Federal Reserve’s two current mandates. Before the Fed embraces a progressive theory of social-impact monetary policy, however, it seems to be doing some due diligence. A new staff report from the New York Fed shows how a central bank focus on racial equity could make the problem worse. … If you are only focused on race gaps in the labor market, the paper finds, then easier money is modestly egalitarian. Yet the effect on wealth is much larger as lower rates push investors into equities seeking higher investment returns. After a bout of expansionary monetary policy, “The earnings gains of black households are dwarfed by the portfolio gains of white households.” One lesson from the paper is that the entire effort to racialize monetary policy is misguided. … If the Fed keeps its eye on its economic mandates, every race will benefit.

The Fed’s ‘Racial Equality’ Dilemma,” The Editorial Board, Wall Street Journal, Feb. 11, 2021.

The Federal Reserve (the Fed) is certainly not the sole cause of racial inequality in the United States, and its policies won’t singlehandedly solve our country’s racial inequities. But the Fed sure could make things better for people of color and most working people by pushing the economy toward sustained full employment, which would allow all those looking for work to find jobs. Adopting the racial equity mandate proposed by the Biden campaign, which, according to the Biden-Harris campaign website, called for the Fed to “aggressively enhance its surveillance and targeting of persistent racial gaps in jobs, wages, and wealth” could help make that happen.

For the Wall Street Journal editors, the Biden proposal to add combatting racial inequality to the Fed’s mandate is so much “wokeism” run amuck. On top of that, in their estimation the proposal would be counterproductive, doing more to worsen racial wealth inequality than it would to im


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