The Federal Reserve, under bipartisan fire for its handling of the economy, could face major changes no matter who becomes the next president.
Former Secretary of State Hillary Clinton, the front-runner for the Democratic presidential nomination, became the latest candidate to push for reforms as she joined a call by 127 members of Congress for more diversity at the Fed.
Clinton aligned herself with some of the party’s top liberals in publicly chastising the nation’s central bank for what they said in a Thursday letter to Fed Chairwoman Janet L. Yellen was its “disproportionately white and male” leadership.
And Clinton went further. She followed her rival for the Democratic nomination, Sen. Bernie Sanders (I-Vt.), in saying bankers should not be allowed to serve on the boards of the 12 regional Fed banks.
Presumptive Republican nominee Donald Trump has supported congressional efforts to audit the Fed’s monetary policy decisions. And Trump told CNBC last week that he “would most likely replace” Yellen when her term expires in early 2018.
Conservatives have criticized the Fed for being too aggressive in trying to boost the recovery, with the central bank more than quadrupling its assets to $4.5 trillion since 2008 through unprecedented stimulus efforts.
Liberals complain that the central bank hasn’t done enough to help lower-income Americans get back on their feet, and that its policies have helped Wall Street more than Main Street.
Clinton’s Fed criticism puts her on record as wanting changes at the Fed.
“The Federal Reserve is a vital institution for our economy and the well-being of our middle class, and the American people should have no doubt that the Fed is serving the public interest,” Clinton spokesman Jesse Ferguson told the Washington Post.
“That’s why Secretary Clinton believes that the Fed needs to be more representative of America as a whole and that common sense reforms -- like getting bankers off the boards of regional Federal Reserve banks -- are long overdue,” he said.
Each of the Fed’s regional banks has a board of nine directors. Three are required to be bankers, although they are excluded from the search and appointment of the regional Fed president.
Those 12 presidents help set the Fed’s monetary policy.
Sanders has said that if he were in the White House, “the foxes would no longer guard the henhouse.”
“Board members should be nominated by the president and chosen by the Senate,” Sanders wrote in a December opinion article in the New York Times. “Banking industry executives must no longer be allowed to serve on the Fed’s boards and to handpick its members and staff.”
In a message published Thursday, a top Fed official said having the president appoint regional Fed bank chiefs “would be a grave mistake.”
“The current Fed governance structure may not be ideal,” Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Va., said in the bank’s quarterly economics magazine. “But until there is a proposal that preserves the monetary policy independence that is so vital to the Fed’s mandate, we should stick to what we have.”
Sanders was among the lawmakers who signed the letter to Yellen that was organized by Sen. Elizabeth Warren (D-Mass.) and Rep. John Conyers (D-Mich.). They complained that “the voices of women, African Americans, Latinos, and representatives of consumers and labor are excluded from key discussions.”
The five members of the Fed Board of Governors are white, and three are men. There are two board vacancies.
All 10 voting members this year of the Federal Open Market Committee (FOMC), the monetary policy-setting body, also are white, and six are men.
In addition, 11 of the 12 regional Fed bank presidents are white, and 10 are men, with no African Americans or Latinos.
The lawmakers praised Yellen, the first woman to chair the Fed, for her strong leadership. But they said she needed “to take steps to promptly begin to remedy” the diversity problem.
Fed spokesman David Skidmore said the central bank was “committed to fostering diversity” in its leadership and has “focused considerable attention in recent years” on recruiting regional bank directors “with diverse backgrounds and experiences.”
Minority representation on the boards of Fed banks and branches increased to 24% this year, from 16% in 2010, he said, and the proportion of female directors increased to 30% of the total, from 23%, during that period.
The Center for Popular Democracy, a worker advocacy group that studied Fed diversity, praised Clinton’s comments.
“Secretary Clinton believes that the Fed needs to be more representative of America as a whole and that common sense reforms — like getting bankers off the boards of regional Federal Reserve banks — are long overdue,” the group said.
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