September 24, 2020

At Banking Hearing, Warren to Fed Chair: Step Up and Use Your Tools to Address Racial Disparities

Senator Warren highlights how the pandemic has hit communities of color the hardest, and urges Congress to pass her bill requiring the Fed to close racial employment and wage gaps; "The Fed can't solve every economic problem on its own, but the Fed is not a helpless bystander. Its decisions matter, and they matter most in our vulnerable communities. And it's time for the Fed to step up on this responsibility."

Video of Exchange (Youtube)

Washington, DC - In a Senate Banking Committee hearing today, United States Senator Elizabeth Warren (D-Mass.) urged Federal Reserve Chairman Jerome Powell to use the various tools the Fed has at its disposal to help eliminate racial disparities.While the the Fed recently took a step in the right direction by making clear that its full-employment mandate means keeping interest rates low long enough to allow growth to reach all households, the Fed needs to go further and take concrete steps in its other activities to address racial disparities. 

Congress must also pass Senator Warren's legislation with Representative Maxine Waters (D-Calif.), Chairwoman of the House Financial Services Committee, and Senator Kirsten Gillibrand (D-N.Y.) requiring the Federal Reserve to use its existing authorities to close racial employment and wage gaps and report on how the gaps change over time.  

Thursday, September 24, 2020
U.S. Senate Committee on Banking, Housing and Urban Affairs

Video (Youtube)

Senator Elizabeth Warren: Thank you, Mr. Chairman. The pandemic and the recession it created have hit communities of color the hardest, and I've said before that I believe that we need a policy response that acknowledges that.

But it is equally important to recognize that racial inequality was amplified by the pandemic. It was not created by it. And even during periods of strong economic growth, measures of economic wellbeing for Black and Brown Americans have lagged far behind those for White Americans.

Now, Chairman Powell, the last time that you were before this committee, you told me that the persistent economic gap between Black and white Americans was an unhealthy feature of our economy. Is that still your view?

Chairman Jerome Powell: Yes. Yes, it is, Senator.

Senator Warren: Good, and I agree with you on this.

Since it was created in 1913, Congress has spelled out in law the mission of the Federal Reserve: to keep unemployment as low as possible and to make sure that we have a stable financial system. The twin goals of the Fed.

Now, you have policy tools at your disposal to accomplish those goals. For example, your decisions affect how much a family pays on a mortgage or on a car loan. Your decisions determine how quickly someone gets credit in their bank account after a paycheck is deposited. 

But, as you and I have discussed before, Black and white families face very different economic realities in this country, and that means decisions from the Fed affect those families differently.

So, the Fed recently took a step in the right direction by making it clear that fulfilling its mandate means keeping interest rates low long enough to allow growth to reach all households - not just those who are doing well already. And this is especially important because historically, in a time of crisis, Black unemployment jumps faster and then takes longer to go down, and the Fed shouldn't slow economic stimulus before Black workers see real economic gains.

This updated statement interpreting your mandate is a good first step, but I believe the Fed could be doing more. And that's why I've introduced a bill with Chair Waters and Senator Gillibrand to require the Fed to use all of its tools to close racial economic gaps. 

So, Mr. Chairman, when you were here three months ago, you said that the Fed would be looking for ways to use your economic tools to do more to address racial disparities. So, I want to follow up. Have you identified a comprehensive list of policies the Fed can pursue in order to make good on these commitments? What-- What is on your list, Mr. Chairman?

Chairman Powell: So, I think you see on the part-- on our part a heightened focus on economic disparities, including racial economic disparities. And you see that if you look on our website. On the front page of our website, we have all of the things we're working on in that area, and it's really become quite a broad set of efforts from data collection to research and things like that. And the reason we do that is that, you know, you give us maximum employment as the goal. And maximum employment we now view in our framework as a broad and inclusive goal which really means we're not just looking at the aggregates. We're going to look at different demographic groups and different measures.

So, I think-- I think we are doing the things that we can do with our tools to address these issues of disparate economic outcomes. I actually think that the far stronger and more important tools are not those of the Fed. Nonetheless, I think that we-- we are-- we are and should be using our tools to the extent we can. And actually, I would just close by saying that all of that is taking place under our current legislative mandate. I would-- I don't really think that you need to change the law to get us to do this. We're doing it already.

Senator Warren: I appreciate that, Mr. Chairman, that you are trying to do this. But I asked you two things. The first one is just name a couple of the specific things you're doing. What did you put on your list in the last three months.

Chairman Powell: Okay. 

Senator Warren: I've heard you say that you've given focused attention.

Chairman Powell: Okay.

Senator Warren: Or attention on this. What changes did you make?

Chairman Powell: The first and most important one is the one-- sorry, the one that I mentioned which was to define our maximum employment goal as a broad and inclusive--

Senator Warren: But I mentioned that one.

Chairman Powell: Yeah.

Senator Warren: What other things?

Chairman Powell: What other things? You know, I would point to the fact that we've been outspoken at the Fed on our commitment to diversity, and to, you know, racial justice.

Senator Warren: I appreciate that, Mr. Chairman, but you now, words aren't good enough on this issue. Every economic policymaker - including the Fed - should be taking steps to confront racial economic disparities head on. And frankly, this can't just be a one-time exercise. I appreciate that you say it's important to you, but the Fed needs to focus on this issue - during your tenure and during the tenure of all future Federal Reserve Chairs. And that's why I have legislation that would require the Fed to talk about these gaps as part of its regular reporting to Congress. And my legislation would also ensure that the Fed uses everything in its toolkit to eliminate those racial disparities.

You know, there is so much more the Fed could be doing: Consider access to credit for Black borrowers when evaluating merger applications; Make sure that payments hit bank accounts faster; Use the Fed lending facilities to prevent layoffs in state and local government.

I get it. The Fed can't solve every economic problem on its own, but the Fed is not a helpless bystander. Its decisions matter, and they matter most in our vulnerable communities. And it's time for the Fed to step up on this responsibility.

Thank you, Mr. Chairman.