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Biden Urges Bigger Role for Fed in Addressing Racial Wealth Gap

Joe Biden called on the Federal Reserve to play a bigger role in addressing racial economic inequality, demanding the central bank look beyond its current mandate of containing inflation and maximizing employment.

The presumptive Democratic presidential nominee proposed in a speech Tuesday that Congress amend the Federal Reserve Act to “add to that responsibility and aggressively target persistent racial gaps in job, wages, and wealth.”

Mr. Biden’s Fed proposal came as part of a broader campaign address in Wilmington, Del., given to lay out a series of ideas he said would help narrow racial economic inequality, including plans to steer government-backed capital and procurement programs to minority-owned small businesses, to send more federal infrastructure spending to Black communities, and to make it easier for people with criminal records to get jobs. Mr. Biden’s campaign said he wasn’t proposing any new spending and was largely highlighting ways his existing policy plans could be used to benefit minority communities and households.

Biden Urges Bigger Role for Fed in Addressing Racial Wealth Gap

“It is about justice,” Mr. Biden said. “For generations, Americans who are Black, brown, Native American, immigrant, haven’t always been fully included in our democracy or our economy.”
The former vice president’s proposal that the Fed embrace a target traditionally left to the White House and Congress continues a recent trend of policy makers looking to expand the central bank’s mission, and of politicians challenging the institution’s traditional independence from politics.
President Trump has repeatedly pressured the Fed to lower interest rates to spur growth, bucking the standard practice in which presidents generally avoided discussing monetary policy to avoid being seen as introducing politics to the process.

Mr. Biden’s proposal Tuesday calls for putting a presidential stamp on the central bank’s work by introducing new social goals. “It’s a troubling trend,” said Douglas Holtz-Eakin, an economic adviser to President George W. Bush. “This is a long way from their traditional mandate.”

Mr. Holtz-Eakin said the Biden plan could lead to politicians trying to set more specific race targets for Fed asset purchases. “And if you want people on the Fed to pursue racial equality, they may not have expertise in monetary policy,” he said.

The Fed has in recent years already taken steps in the direction that Mr. Biden proposed. The central bank currently includes data on racial disparities in twice-yearly reports to Congress, and its leaders have talked about the need to foster a more equal economy.

As president, Mr. Biden would have the power to push the Fed further in that direction, even without a legislative change to its mandate, since the terms of Fed Chairman Jerome Powell and his two vice chairs would expire early in his term. The candidate made clear in his speech he would use his appointments to advance his goals, saying he would prioritize “diverse nominees for the Board of Governors and the regional Federal Reserve Banks.”

Tuesday’s speech was the fourth in a series of policy announcements that Mr. Biden has given over the past month to round out his economic agenda before the Democratic National Convention next month.

His first plan, costing $700 billion over 10 years, focused on boosting American manufacturing with proposals designed to compete with President Trump’s “America First” trade platform. Mr. Biden’s other economic pillars were a $2 trillion program to combat climate change and a $775 billion proposal to ease the burden on families struggling to care for their children and elderly relatives under the financial strain of the coronavirus pandemic.

Mr. Biden has said he would pay for his plans by raising taxes on corporations and wealthy Americans. His campaign has also suggested that some spending would come from a stimulus package to mitigate the economic damage caused by the coronavirus pandemic, which aides have said wouldn’t be offset by raising more revenue since it wouldn’t be permanent spending.

Mr. Biden’s platform to address racial inequality largely relies on spending hundreds of billions of dollars in expanded and new programs on everything from housing and education to health care.
In contrast, President Trump has taken a more market-oriented approach and has argued that until the pandemic hit, he had done more to help minority communities by overseeing an economy that saw record-low Black unemployment.

“For Black voters, President Trump is the one with results,” said Katrina Pierson, a senior adviser to Mr. Trump’s campaign.

In embracing a heightened role for the Fed on racial inequality, the Biden campaign is tapping into growing calls on the left to take a harder look at the central bank’s impact on economic disparities.
In a widely cited June policy paper, Jared Bernstein — who was Mr. Biden’s chief economist when he was vice president and currently advises the campaign — urged the Fed to go beyond simply targeting a low overall unemployment rate and set a target for reducing the Black jobless rate, which historically runs much higher than the rate for white workers.

Some critics say Fed policies during the pandemic have amplified racial economic gaps. “The Fed has been a big reason why the stock market and corporate bond market are doing as well as they are, and that disproportionately helps people who are white and wealthy,” said Bharat Ramamurti, a Democratic member of the oversight commission created by Congress to monitor the central bank’s rescue measures during the pandemic.

Mr. Ramamurti — who was a policy adviser to Massachusetts Sen. Elizabeth Warren’s presidential campaign — was referring to Fed efforts to aid the equity and credit markets. He said that in contrast, the Fed hasn’t done as much to help state and local government borrowers, which employ large numbers of Black workers, as it has private-sector borrowers, adding: “The fact that the Fed is so generous to big corporations and stingy to state and local governments has racial impacts.”

Some progressives worry that moves by both the left and right to lean on the Fed to address economic problems is a way to avoid seeking more spending on social programs from Congress.

The Fed’s tools for minimizing unemployment are “a macro approach and can prevent racial damage,” said Ohio State University economist Darrick Hamilton, an expert on the racial wealth gap. “But that needs to be complemented with a fiscal approach to provide assets to really empower Black communities.”

Mr. Biden has also endorsed legislation before Congress that would create a commission to study federal reparations to Black Americans for slavery and the long period of discrimination that followed. He is the first major party’s presumptive nominee to do so since the bill was originally introduced in 1989.

But Mr. Biden has steered away from some aggressive policies to curb the racial wealth gap endorsed by some of his rivals for the Democratic presidential nomination, such as “baby bonds,” a plan that would give all Americans a federally funded savings account at birth, allowing low-income families to build up net worth. A campaign adviser said he was willing to look at a “pilot program” for that policy but wasn’t willing to go further at this time.

Overall, Mr. Biden’s proposed programs would increase federal spending by more than $7 trillion, according to some independent estimates. The Biden campaign has said he will ultimately unveil tax increases and other offsets to cover most of the new spending.


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