Warren presses Powell on Fed’s role in fighting racial wealth gap

Greg Nash

Sen. Elizabeth Warren (D-Mass) is pressing Federal Reserve Chairman Jerome Powell on whether the central bank was unwittingly deepening racial inequality with its response to the coronavirus recession.

In a series of written questions released Thursday, the senator asks Powell if the Fed is actively watching how its monetary policy affects the racial wealth gap and what it could do to narrow that spread.

“The Fed and Congress need to take deliberate action to ensure we reverse the serious racial gaps in the current recovery — and I’m asking Chair Powell to be specific about what the Fed can do to address this crisis within a crisis,” Warren said in a Thursday statement.

The Fed has been widely praised for its swift response to the pandemic-driven economic collapse and the financial panic that preceded it, but the bank is also under growing pressure to consider the ways it affects the racial wealth gap.

Warren’s questions were submitted in response to Powell’s testimony last week before the Senate Banking Committee, when the Fed chief acknowledged that the failure of Black unemployment to sink in May while white employment rose was “not a healthy feature of our economy.”

Lawmakers often submit questions for the record to government officials and nominees who appear before congressional committees if they’re unable to ask them during the hearing.

In her questions for the record, Warren asks Powell if the Fed considers the impact of its adjustments to interest rates, asset purchases, emergency lending, and bank regulation on the racial wealth gap.

White families on average hold 10 times the wealth of Black families, according to Fed studies, largely due to the legacy of discriminatory policies that locked people of color out of homeownership and other important drivers of wealth.

Slashing interest rates to near-zero levels and purchasing bonds and other securities, the Fed’s two main monetary policy responses to crises, are intended to support lending and other activities that help the economy expand and add jobs.

But those practices can also push higher the values of stocks and other financial assets, which can broaden the gap between those who have large financial portfolios and those who don’t. At the same time, low interest rates can hinder the long-term saving ability of those who must keep their wealth in easily accessible and stable bank accounts.

That dynamic helped families who avoided the worst of the Great Recession substantially increase their wealth through the record-breaking stock market rally that followed the downturn, while families with few financial assets remaining struggled to keep pace due to low wage growth.

While Powell has acknowledged the deepening racial wealth growth, he insisted that the best thing the Fed can do to promote equality is to keep supporting the economy until it reaches the maximum level of employment.

The Fed under Powell launched a nationwide listening tour to better understand the impact of its monetary policy and concluded that the central bank should be more willing to keep rates low to foster job gains instead of cutting back early to preempt inflation.

“There really isn’t this bright line that separates Main Street from Wall Street,” said San Fransisco Federal Reserve Bank President Mary Daly, according to Reuters.

“If we don’t repair the financial markets and ensure they have liquidity, they can’t pass along the interest rate changes to households and businesses that need them the most…our support for the economy supports everyone,” she added. 

Tags Coronavirus Elizabeth Warren income inequality Jerome Powell racial wealth gap

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