Today, the Financial Services Committee passed legislation introduced by Chairwoman Maxine Waters (D-CA) to require the Federal Reserve to use its existing authorities to close racial employment and wage gaps and report on how the gaps change over time. Senator Elizabeth Warren (D-MA) and Senator Kirsten Gillibrand (D-NY) introduced companion legislation in the Senate to address the inequities that exist within the Federal Reserve.

“The job of the Federal Reserve is to oversee our nation’s economy,” said Chairwoman Waters. “In that role, the Fed has a responsibility to ensure the voices of communities are heard and to play a role in addressing racial and economic inequality. Over the past year, Fed officials themselves have recognized they have a role in addressing the racial inequality that has plagued our economy for far too long. This extends beyond the Fed’s monetary policy to things like their oversight of the payments system and their review of bank mergers. This bill requires that the Fed provide labor force trends and plans to ensure racial and economic justice is included in decision making. Long before the pandemic hit people of color the hardest, my colleagues and I had called on the Federal Reserve to fix systemic barriers for candidates of color within its labor force. The current crisis has only further highlighted the fact that we need all hands on deck, including the Federal Reserve, to take action to address racial equity.”

“The Fed can use its existing authorities to help reverse the serious racial gaps in our economy, including in our current recovery from the COVID-19 crisis - and our bill will require the Fed to do so," said Senator Warren. "Systemic racism and inequality is not something that happens on its own -- it is a result of specific policy choices and the Fed must take deliberate action to fix it.”

“Not only did the pandemic reveal the substantial racial gaps in our economy, but its disproportionate harmful impact on communities of color deepened the divide, especially in our financial system,” said Senator Gillibrand. “As we rebuild our economy, the government has a responsibility to address racial disparities in wages, economic opportunity and wealth. Now is the time to act and to give the Federal Reserve the explicit mission of combating institutional racism in our economy.”

The Federal Reserve Racial and Economic Equity Act would require the Federal Reserve to carry out its duties in a manner that supports the elimination of racial and ethnic disparities in employment, income, wealth, and access to affordable credit. The Board would be required to report on disparities in labor force trends as well as on plans and activities of the Board to minimize and eliminate these disparities.

The legislation was inspired in part by a study published last year by Janelle Jones, now the chief economist at the Department of Labor, and Jared Bernstein, now a member of President Biden's Council of Economic Advisers. Jones and Bernstein found that “Historical estimates of the natural rate [of unemployment] reveal that black unemployment has never fallen below those estimates…” even though the overall rate of unemployment has. Federal Reserve officials have acknowledged that they have a role to play in addressing racial inequality, including through an essay by Atlanta Federal Reserve President Raphael Bostic shortly after the murder of George Floyd.

Read the bill text here.