Fed tackles inflation with its most diverse leadership ever
When Diane Swonk first attended the Federal Reserve’s annual economic meeting in Jackson Hole in the late 1990s, the women in attendance had a good time. It barely filled a table.
Now, the “Women of Jackson Hole” happy hour draws dozens of female economists and top policymakers from the U.S. and abroad.
“I’m glad there’s a long line in the women’s restroom now,” said Swank, a longtime Fed watcher and chief economist at accounting giant KPMG.
Not only in Jackson Hole, but on the Fed’s board of directors, its leadership has become the most diverse place it has ever been. More women, black and openly gay officials are involved in central bank interest rate decisions than at any time in its 109-year history. Many were also far less wealthy than the officials they replaced.
Economists say a broader voice will deepen the Fed’s view over time as it weighs the consequences of raising or lowering rates. It may also help diversify occupations that have historically not been seen as particularly welcoming to women and minorities.
“Overall, it’s been helpful,” said William English, a former senior Fed economist who teaches at the Yale School of Management. “There is evidence that different groups make better decisions.”
The central bank is doing what it is doing now, raising its benchmark short-term interest rate when it wants to reduce inflation and lowering it when it wants to speed up hiring. These moves, in turn, affect the cost of borrowing across the economy — mortgages, auto loans and business loans, to name a few.
At the Jackson Hole Symposium on Friday, Chairman Jerome Powell stressed that the Federal Reserve plans to raise interest rates further and expects to keep its benchmark rate high until the worst bout of inflation in 40 years eases significantly — even if doing so leads to Unemployment and financial pain for families and businesses.
Economist Rhonda Vonshay Sharpe, director of the Institute for Women in Society, Equity and Race, said she welcomed the expanded leadership at the Fed. Sharpe said she “wants more diverse people to pay attention” to what the Fed is doing and aspire to a high-level economic role.
She suggested that colleges and universities should do more to encourage students to prepare for careers in economics, including directing more students to study mathematics.
Changes at the Fed are quick, and just this year, three African-Americans and three women joined the 19-member central bank’s rate committee. (Under the Fed’s rotation system, only 12 of the 19 committee members vote on their rate decisions each year.)
The Fed’s influential seven-member council based in Washington now includes two black economists, Lisa Cook and Philip Jefferson, both nominated by President Joe Biden and sworn in in May. They are the third and fourth black people on the board. Governors can vote on every Fed rate decision.
Biden also promoted Lael Brainard, governor since 2014, to the board’s powerful vice chair position.
In addition, two of the Fed’s 12 regional bank presidents are now black — Rafael Bostic of the Atlanta Fed and Susan Collins of the Boston Fed. Collins, a former University of Michigan provost, became president of the Boston Fed this year. Bostic took office in 2017.
Just last week, Lori Logan, a former senior official at the Federal Reserve Bank of New York, became president of the Federal Reserve Bank of Dallas. Five regional bank presidents are women.
Nela Richardson, chief economist at payroll processing firm ADP, noted that the education and experience of new policymakers is similar to that of their predecessors, Cook, Jefferson and Collins all Ph.D. Economists — an above-average percentage of new Fed officials, she said.
Richardson said it is especially important to have more women in the leadership of the Fed now because many of the problems the Fed faces — including extremely low unemployment that fuels wage growth and inflation — are tied to women’s ability to join the workforce. Fewer women, especially mothers of young children, are working now than pre-pandemic trends.
Part of the reason for this shortage is the decline in the number of child care workers since the pandemic. With fewer women working or seeking employment, many businesses must raise wages to compete for a smaller workforce. These higher wages are often passed on to consumers at higher prices, fueling inflation.
Swonk credits Kansas City Fed President Esther George for driving change at Jackson Hole over the years by inviting more women, including Cook and Collins, to attend and participate in panel discussions. Each year in late August, some 130 influential central bankers and economists gather in Jackson Hole’s Grand Teton National Park to discuss challenges facing the economy.
Despite its significantly diverse leadership, the Fed has yet to address one problem: a Hispanic American who has never served on the Fed’s rate-setting committee — a frequent expression of Sen. Robert Menendez, D-N.J. complain. For that reason, Menendez voted this year against confirming Powell’s reappointment as Fed chair for a second four-year term.
This year, Biden also named former Treasury official Michael Barr as a Fed governor, filling all seven board seats for the first time in nearly a decade.
Vincent Reinhart, a former Fed economist now at Dreyfus and Mellon University, said it was unusual for the Fed to experience so much turnover so quickly. Fed governors’ terms are staggered, with the aim of creating a vacancy every two years. Regional bank presidents serve a five-year term, renewable.
“This has to be the most dramatic change in Fed leadership in a year on record,” he said.
New members, including Barr, are more likely to support lower rates to support the economy and hiring, Reinhardt said. For now, however, with inflation near 40-year highs, the Fed’s policy-making committees are acting unanimously to raise interest rates sharply in an attempt to cool the economy and reduce inflation. Currently, there is little indication of any objection to this approach.
Tim Duy, chief U.S. economist at SGH Macro, said the Fed differs from the Supreme Court in one important way: Just because a president nominates several new Fed board members, it doesn’t necessarily affect the central bank’s decision making.
The Fed is a more technical institution, “where you’re more likely to see people’s opinions change over time” in response to changing economic data, Duy said. At the July meeting, all 12 members of the Fed’s policy committee voted for a sharp three-quarters rate hike — an unusually large increase.
Still, Reinhart said that if inflation should fall sharply and appear to be under control, and if unemployment starts to rise as Fed hikes squeeze the economy, some of Biden’s appointees may begin to advocate for a halt to rate hikes — or even reduction rate.
The outcome could lead to less consistency around the Fed’s decision, Reinhart said. Or Powell could end up pausing rate hikes sooner than he hopes to keep the consensus.
“As we get longer into this rate hike cycle, there will be more opportunities for disagreement,” he said.