MLK Day Reflections on the FOMC

The Federal Reserve Act designed the Federal Open Market Committee (FOMC) to ensure that the Committee sees the economy from many different angles.  Thus, the Presidents of the various regional Feds regularly report out to the FOMC on conditions within their Federal Reserve Districts.  Those reports are based in large part on economic intelligence from the Boards of Directors of the various regional Banks.  As is statutorily mandated, those Boards have representation from many walks of economic life - see here for what I mean. 

As a monetary policymaker, I felt this emphasis on economic diversity greatly enhanced the Committee’s deliberations.  Of course, the FOMC doesn’t make monetary policy based solely on economic conditions in, say, Williston, North Dakota (at the heart of the recent Bakken oil boom).  But the US is a remarkably heterogeneous economy.  It is appropriate - indeed essential - for monetary policymakers to reflect on how national economic forces, and how the FOMC’s reactions to those forces, are impacting different Americans differently.  

However, there is one key source of economic difference in American life that is likely underemphasized in FOMC deliberations: race.  Let’s look, for example, at the most recently released transcripts for FOMC meetings, which cover the year 2010 (my first full year on the Committee).  It was a challenging year for the US economy as a whole, as the unemployment rate was above 9 1/4% in every month.  But it was especially challenging for African-Americans: In every month of 2010, the unemployment rate among African-Americans was at least 15 1/2%.   I did a search of the hundreds of pages of the meeting transcripts.  Based on that search, my conclusion is that there was no reference in the meetings to labor market conditions among African-Americans (or Black Americans).

Monetary policymakers, with their needed independence, always risk being (or at least being seen as) insufficiently empathetic to the lives of their nations’ citizens.  The Federal Reserve Act has mitigated this risk in the US by ensuring that an appreciation for economic diversity is at the heart of the FOMC’s deliberations.   

But the Federal Reserve Act’s vision of economic diversity is largely regional and sectoral in nature.  As we all know all too well, race matters: the average African-American’s experience with the US economy is very different from that of the average white person’s.   I believe that the Committee’s deliberations would be even stronger if they took more account than they did in 2010 of this essential source of heterogeneity in our nation’s economic life.  

N. Kocherlakota

Rochester, NY, January 18, 2016

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