- The Federal Reserve is finally starting to take the concerns of average workers more seriously in its monetary policymaking.
- In order to cement this commitment to workers and full employment, President-elect Joe Biden should nominate Fed Board members with a background in organized labor.
- There have been a vanishingly small number of labor leaders at the Fed over its long history, this needs to change.
- Kaleb Nygaard is a graduate student at Yale’s School of Management studying Systemic Risk. He is the Editor in Chief of the central banking education website Centralverse and the host of The Bankster Podcast.
- This is an opinion column. The thoughts expressed are those of the author.
- Visit Business Insider’s homepage for more stories.
It’s time for someone to truly represent the voice of workers at the Federal Reserve.
The health and economic one-two-punch of COVID-19 has had a particularly devastating effect on working-class families. It has also made it clear that policymakers need to focus their efforts on helping those families.
Despite this, not a single person with a background in organized labor has had a vote on the Federal Reserve’s all-important Open Markets Committee (FOMC), past or present. Since it was formalized in the 1930s Banking Acts, there have been 179 people who have served on the committee.
Adding someone with a background in labor to the leadership of the Fed would help ensure these working-class families have representation at the most important macroeconomic decision-making-table in the country.
To repeat, not a single one has had a background in Labor.
In January, President Biden should change that.
A seat at the table and a voice at the Fed
There are two types of participants on the FOMC: seven Governors who work from the Fed office in Washington DC and 12 Presidents who head the Reserve Banks spread across the country. How they are chosen and who does the choosing is very different for the two types.
The seven Governors are nominated by the US President and confirmed by the Senate in the same fashion that Cabinet Secretaries or Supreme Court Justices are chosen.
By law, the Governors are supposed to consist of “a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country”.
One of the seven seats sits empty at the moment. On day one, President Biden should nominate someone with a background in labor to fill the seat, and whichever party controls the Senate should confirm the nominee.
The selection process for the 12 Presidents is more complicated. Each Reserve Bank is overseen by a nine-member Board of Directors. Three are bankers, elected by banks in the area. Three are non-bankers, elected by banks in the area. And three are non-bankers, appointed by the seven Governors in Washington DC. The six non-bankers are the ones responsible for choosing the Reserve Bank President.
By law, the non-banker-directors are supposed to consist of “the interests of agriculture, commerce, industry, services, labor, and consumers.” So although the process is more complicated and less democratic for the selection process of the Reserve Bank Presidents, the legal foundation upon which it sits explicitly includes Labor representation.
In the full 106-year history of the Fed, only 45 representatives of labor have been on the Board of Directors of the 12 Reserve Banks.
And when you look at it as a percentage of the non-banker directors, the lack of labor representation is even more paltry.
Less than 20% of the labor representatives were elected by banks. The remaining 80% plus were appointed by the Governors in Washington DC. The total per district also varies greatly. The Federal Reserve Bank of New York has had the most with nine, and the Federal Reserve Bank of Atlanta has not had a single one.
In August, the Fed announced the conclusion of their first-ever-public framework review. There were many changes made because of the review, but the overall thrust of the changes was to give greater attention to improving the employment situation of average Americans, with the greatest impact of the changes going to working-class families.
This focus on the labor market and working families even showed up in 2019, when the Fed made a sharp turnaround and reversed the interest rate increases they had made in the previous few years. They admitted they’d missed the mark on full employment. As Chairman Jay Powell said at the time: “We really have learned that the economy can sustain much lower unemployment than we originally thought without troubling levels of inflation”.
To confirm the spirit of both the Fed’s 2019 admission of misreading the employment situation and the 2020 policy changes, President Biden should nominate someone with a background in labor to fill the empty Governor seat. Going forward, this would ensure that the voices of the tens of millions of working-class families who are struggling through the effects of the pandemic, are heard in the decision-making room of our country’s central bank.
For the same reasons, the Reserve Bank Board of Directors should consider candidates with a background in Labor for future Reserve Bank President positions.