CPD IN THE NEWS

A majority of House Democrats and eleven Democratic senators sent a letter to Federal Reserve Chair Janet Yellen on Thursday, urging the Fed to improve the diversity of its top officials and increase the representation of consumer and labor groups in its ranks.

The letter, spearheaded by Sen. Elizabeth Warren (D-Mass.) in the Senate and Rep. John Conyers (D-Mich.) in the House, argues that a lack of diversity of all kinds at the Federal Reserve undermines the central bank’s ability to represent the public.

The Fed’s control over monetary policy, the letter notes, gives it far-reaching influence over the economy. When the central bank decides to raise interest rates, it increases borrowing costs, putting downward pressure on job creation in order to keep inflation in check.

A Fed with fewer black and female decision-makers might be less attuned to the ways in which modest changes in the job market disproportionately affect African-Americans and women, both of whom suffer from employment discrimination.

“When the voices of women, African-Americans, Latinos, and representatives of consumers and labor are excluded from key discussions, their interests are too often neglected,” the letter states.

Boasting the signatures of 116 House Democrats, including all of the Democrats in the Congressional Black Caucus, the letter does not lack for evidence with which to critique the central bank.

Eighty-three percent of the board members of the regional Federal Reserve banks are white, and almost three-quarters of them are men, according to a Center for Popular Democracy study cited in the letter.

Just 11 percent of those board members represent consumer and community groups or labor organizations, the study states, while 39 percent come from the financial industry and 47 percent from other major business sectors.

When the voices of women, African-Americans, Latinos, and representatives of consumers and labor are excluded from key discussions, their interests are too often neglected.

Warren-Conyers letter to Janet Yellen

The congressional Democrats praised Yellen in the letter for prioritizing full employment since she has taken the helm in 2014. Yellen has presided over just one increase in the Fed’s benchmark rate in December, when the Fed raised it to a range of 0.25 to 0.5 percent from the near-zero level, where it had been since the 2008 financial crisis.

The letter also credits Yellen for promising to “consider” African-American candidates for open regional Fed president positions during her congressional testimony in February, and expressing “concern” that there has never been a black president of a regional Federal Reserve bank.

But just days after Yellen’s testimony, the Democrats note, the Fed announced it had approved the re-appointment of 10 regional Fed presidents, all of whom are white and eight of whom are men.

“Despite the importance of this decision, there appears to have been no public consultation, and limited transparency regarding the metrics and criteria used to evaluate the presidents’ performance, or in the decision to reappoint them,” the letter alleges.

Warren and Conyers’ letter is part of a broader push by progressive members of Congress, along with national activist groups and like-minded economists, to make Federal Reserve monetary policy a key component of the progressive agenda. They argue that the outsize influence of inflation-wary financial professionals on the central bank, plus sustained pressure from ideological conservatives in Congress, mean it’s time for liberals to be more vocal about their views.

The Fed Up coalition, an alliance of progressive groups headed by the Center for Popular Democracy, has led these efforts, which include a reform plan released in April that would transform the Fed into a wholly public entity, among other changes. (The 12 regional Fed banks are currently owned by private financial institutions.)

Fed Up said activists affiliated with its member groups made calls to members of Congress to encourage them to sign the letter.

Democratic hopeful Sen. Bernie Sanders (I-Vt.) was among the lawmakers who did so. Sanders also praised Fed Up’s April reform plan and released detailed proposals of his own for the central bank in December.

Fellow Democratic candidate Hillary Clinton’s campaign implied that Clinton agreed with the letter’s key demands.

“Secretary Clinton believes that the Fed needs to be more representative of America as a whole as well as that commonsense reforms — like getting bankers off the boards of regional Federal Reserve banks — are long overdue,” Jesse Ferguson, a spokesman for the Clinton campaign, said in a statement. “Secretary Clinton will also defend the Fed’s so-called dual mandate — the legal requirement that it focus on full employment as well as inflation — and will appoint Fed governors who share this commitment and who will carry out unwavering oversight of the financial industry.”

The remarks appear to be the most explicit comments to date by either Clinton or her campaign on the Democratic presidential front-runner’s vision for the Fed and the types of Fed officials she would appoint as president.

Presumptive GOP nominee Donald Trump’s presidential campaign did not immediately respond to a request for comment on the letter.

Trump told CNBC last week that he would likely replace Yellen, who is the first female chair of the central bank, once her term ends in 2018. In the same interview, he said he supports low interest rates, a policy Yellen promoted that might be undone by a more conservative Fed chair.

Trump’s latest comments suggest a departure from claims he made in August, when he said the low rates were feeding a financial asset bubble.

By Daniel Marans

Source

A former top Federal Reserve staffer joined with activists on Monday to lay out the mechanics of a plan to overhaul the structure of the U.S. central bank.

Dartmouth College’s Andrew Levin, who was a top adviser to former Fed Chairman Ben Bernanke, Jordan Haedtler of the left-leaning Center for Popular Democracy’s Fed Up campaign and the Economic Policy Institute’s Valerie Wilson say in a paper that their proposals amount to an important modernization of the Fed.

“The Fed’s structure is simply outdated, and that makes it harder for its decisions to serve the public,” Ms. Wilson said in a press call. “We are well aware we can’t create a dramatic shake-up” of the Fed, she said, explaining what she and her colleagues are calling for is “pragmatic and nonpartisan.”

The linchpin of the overhaul is bringing the 12 quasi-private regional Fed banks fully into government. The paper’s authors also repeated calls for bankers to be removed from regional Fed bank boards of directors, while proposing nonrenewable terms for top central bank officials and greater government oversight over Fed actions.

The paper Monday fleshed out the specifics of how the overhaul would happen, building on ideas first made public in April. “We had a ‘why,’ and now we have a ‘how,’” Mr. Levin told reporters.

Mr. Levin and Fed Up have seen successes in their campaign to overhaul the central bank. Earlier this year, congressional Democrats and the campaign of Democratic presidential nominee Hillary Clinton endorsed their push to remove bankers from the boards overseeing the 12 regional Fed banks. Fed Up’s effort to promote diversity in a central bank that is still dominated largely by white males, not withstanding the current leadership of Chairwoman Janet Yellen, also has gained traction among Democrats.

The regional Fed banks are unique among major central banks for being owned by local banks. Some fear this structure gives financial institutions undue sway over policy decisions. Fed bank presidents have countered this isn’t the case.

Regional Fed officials have acknowledged that more diversity within the central bank system would be welcome, but they have been reluctant to tinker with the current structure. The paper also proposes auditing the Fed’s monetary-policy-making functions, and that has been something officials have fought hard against, believing it will lead to bad economic outcomes.

The authors say regional Fed banks can easily be made public by canceling the shares of the member banks and refunding the capital these banks were required to keep with the Fed.

The money to do this can be created by the Fed, and the paper says the fact that the central bank no longer would have to pay dividends to the banks would help it return more of its profit to the government. Over the next decade, that could mean the Fed might return as much as $3 billion more in excess profit, helping reducing the government’s budget deficit.

A number of regional Fed bank leaders have pushed back at being made fully public. In May, New York Fed President William Dudley said “the current arrangements are actually working quite well, both in terms of preserving the Federal Reserve’s independence with respect to the conduct of monetary policy and actually leading to pretty, you know, successful outcomes.”

The paper’s authors said making the Fed fully public also would allow it to remove bankers and other financial-sector members from the boards that oversee each regional Fed bank. The authors said directors should be nominated by either a member of Congress or a state governor, subject to approval by the Fed boards.

None of these directors should be from the financial sector, to prevent the conflict of interest created by a member of a regulated financial institution overseeing the operations of their own regulator.

This, too, has drawn pushback from some on the Fed. Philadelphia Fed leader Patrick Harker said in July that “the banker from a small town in Pennsylvania provides incredibly important insight,” and he wants people like that on his board.

New bank leaders should be selected by an open process in which candidates are named publicly, with a formal mechanism for public input. All Fed officials also should serve single staggered seven-year terms, which the paper says would help insulate central bankers from political interference. The selection process of regional Fed bank leaders has long been a secretive affair. Meanwhile, the leaders of the Dallas, Minneapolis and Philadelphia Fed banks, who all took their posts since 2015, have had connections to Goldman Sachs, which has drawn criticism from the Fed Up campaign. Mr. Dudley at the New York Fed was once that firm’s chief economist.

The authors also would like to subject Fed monetary policy decisions to Government Accountability Office audits. To ensure this oversight doesn’t interfere with Fed decision-making, the paper calls for the audits to be done annually and not at the request of a member of Congress, and the GAO shouldn’t be able to comment on any given interest-rate decision.

The paper calls for the Fed to release a quarterly monetary policy report that describes officials’ views on policy, the economy’s performance relative to the Fed’s official price and job mandates, forecasts and a description of risks, and a description of any models driving policy-making.

Any changes to the Fed are ultimately up to elected officials. In February, Ms. Yellen told legislators “the structure could be something different and it’s up to Congress to decide that—I certainly respect that.”

By Michael S. Derby

Source

Members of groups including Hedge Clippers and the Center for Popular Democracy protest outside Blackstone's New York headquarters in January.

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The American labor movement, over the past four decades, has had two golden opportunities to shift the balance of power between workers and bosses — first in 1978, with unified Democratic control of Washington, and again in 2009. Both times, the unions came close and fell short, leading, in no small part, to the precarious situation labor finds itself in today.

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