The Biden administration has taken a step toward reshaping the composition of the nation’s central bank, naming Michigan State Professor Lisa Cook, Davidson College Economist Philip Jefferson, and former Fed Governor Sarah Bloom Raskin to take on top jobs at the Federal Reserve.
Those picks would bring diversity to a central bank that has committed to thinking about racial inequities as it steers economic policies. Economists and policymakers who know the three nominees say they can help the Fed pay closer attention to the immediate concern of the pandemic’s disparate impact particularly on Black, Hispanic, and women-led households.
If confirmed, Cook would be the first Black woman in the Fed’s over 100-year history to serve as a Fed governor.
The slate of nominees could also create the first ever female majority on a fully-occupied Fed Board in its history (a number of vacancies briefly led to a 3-2 female majority in 2011).
Former Fed Governor Betsy Duke, who served on the Fed Board from 2008 to 2013, said the appointments would also feed further diversity in generations to come.
“Future economists, future Fed governors, people who are maybe in high school now, just getting ready to go to college, will look at this and say, that’s a possible career for me,” Duke told Yahoo Finance on Friday. She added that the economics profession has "not been very diverse for quite some time."
The Fed’s own statistics confirm the socioeconomic divide in the U.S. In its 2019 Survey of Consumer Finances, white families were reported to have had a median wealth level of $188,200, substantially larger than the median Black family’s wealth level of $24,100.
Growth rates in wealth-holding for Black and Hispanic families (33% and 65%, respectively) were faster than that of white families (3%) from 2016 to 2019.
Both Jefferson and Cook are economists who have studied the issues that may be related to such gaps.
Jefferson, who currently serves as Davidson College’s vice president for academic affairs and dean of faculty, has closely studied monetary policy, as well as the disparate impacts of economic shocks — a relevant perspective given the pandemic.
“Phil is exactly the type of economist who should be at the Fed at this difficult time,” said Kevin Hassett, a former economic advisor to the Trump administration.
Jefferson wrote a 2008 paper highlighting the heightened economic volatility faced by African-American families and female-headed households, showing that those communities remain fragile even during times of robust economic growth.
Meanwhile, Cook’s research has looked at the role of patents in economic activity, noting that GDP per capita is underperforming by about 4.4% because of the dearth of filings from African-Americans and women.
Raskin, whose nomination marks a potential homecoming for the former Fed Governor, had been vocal about the importance of low- and moderate-income Americans within the context of not only monetary policy but regulatory policy. As Fed vice chair of supervision, she would have purview over the implementation of the Community Reinvestment Act, which ensures access to credit across income groups.
The Fed may not be able to directly address some of those issues. But as the central bank thinks about paring back its easy money policies in the face of rising inflation, the new Fed nominees could be instrumental in thinking about how higher interest rates and tightening policy affect those marginalized communities.
Harvard Professor Larry Katz told Yahoo Finance that both Cook and Jefferson are “excellent and exciting” nominees for the Fed.
Fed Chairman Jay Powell, who is up for a second term as the central bank’s top official, has emphasized that policymakers in Congress and at the White House would be better suited to address specific policies to narrow the racial wealth and income gap. But he acknowledged the Fed should be thinking about those disparities.
“I think we’ve identified the part that we can do, and we’ll do that part,” Powell pledged on Sept. 22 last year.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.