Fed diversity is improving, but it still has a long way to go

Logan, who previously managed the Fed’s vital open-market operations in New York, is one of five newcomers to the 108-year-old institution’s upper echelons in the past year. Three are at the bank’s central hub in Washington—including its first Black female governor, Lisa Cook—while Logan and Susan Collins, head of the Boston Fed, bring the number of female reserve bank presidents to five.

“Seeing Lisa Cook be the first Black woman on the Board of Governors is amazing—that’s been great to see and inspiring,” said Kyle Moore, an economist at the Economic Policy Institute in Washington. “There are efforts at the Fed to diversify, this is evidence of that.”

For a government agency that prefers to move gradually, the change at the top has come fast, thanks in large part to increased pressure in the wake of a national reckoning around diversity. 

But it has also fallen short in some ways. The Fed has still never had a Latino leader, even as Latinos make up almost one-fifth of the U.S. population. And among its rank-and-file employees, especially the economist cohort that advises leaders on policy, the bank is still largely White and male. 

“Research shows that diversity across a number of different dimensions is important for sound policy making,” Cecilia Rouse, chair of President Joe Biden’s Council of Economic Advisers, said in an email. “People come to the table with a range of world views, which counteracts the tendency toward the echo chamber where ideas are not challenged.”

The past year’s changes come at a pivotal time for the Fed as it tries shepherd the economy through the aftershocks of the pandemic. Inflation at the fastest pace in 40 years wasn’t just missed by the Fed’s forecasters—policy makers dug in their heels as prices drifted higher and are largely seen as moving too slowly to start wrestling it down. 

Including people with different backgrounds and lived experiences can help avoid groupthink and generally leads to better problem solving, research has shown. Diversity in industry and geography—not gender and race—led to the creation of the Fed’s decentralized system of 12 reserve banks. But Congress made the decision recognizing that the central bank should represent the nation’s variety of people and businesses.

The Fed is the largest employer of doctorate-level economists. The more than 900 experts in everything from finance to immigration help inform policy makers on the state of the U.S. economy, and how monetary policy is affecting it. Critics argue that a lack of diversity at this level particularly handicaps the Fed. 

“Where there still needs to be some work is the middle levels because folks aren’t being brought into the economist positions at the same rate and that kind of determines how the Fed operates day to day,” Moore said.

One third of the reserve banks don’t employ a single Black economist, including the Richmond Fed, whose district has nearly twice the share of Black Americans as the country at large. 

The Board, with more than 400 economists, employs no Black women among that number and just one Black man. Women make up less than a third of economists there and at all 12 reserve banks except for the Boston Fed, where there are exactly two men for every woman. The central bank does not employ any Native American or Native Hawaiian and other Pacific Islander economists.

“We work hard on diversity every day,” Richmond Fed President Thomas Barkin said. “Part of that is going to HBCUs and attracting people into our organization as research analysts into the economics department with the idea of convincing them to go get PhDs.”

The Fed’s work with Historically Black Colleges and Universities, and other groups, has helped it recruit a cohort of research assistants—typically a two-year job that helps prepare people for graduate-level studies—that is somewhat more diverse. 

Some reserve banks have made strides in hiring Latino economists. One-quarter of the cohort at the St. Louis and Richmond Fed banks are Latino. Some of the reserve banks, including St. Louis, and the Board are making more direct efforts to reach minority groups when hiring, said Jose Fernandez, chair of the economics department at the University of Louisville and a member of the American Society of Hispanic Economists.

“That is a place where they have an opportunity to make a difference and it’s one where they can’t knock on the leaky pipeline excuse because Hispanics are actually over represented in the Fed relative to the profession,” Fernandez said. “I don’t know why that hasn’t happened yet, particularly in some districts where you could see it being quite important.”

While Asian Americans are also well represented across much of the system, including among the economists, just one of the 19 leaders is of Asian descent: Minneapolis Fed President Neel Kashkari. 

The announcement of Logan’s selection to the Dallas Fed drew criticism from some Fed watchers who had called for a Latino appointment in a district that is 38% Hispanic.

“We’ve never had a Hispanic president of a regional Federal Reserve bank—it’s atrocious—in 100 years,” said Andrew Levin, a former Fed adviser and a professor at Dartmouth College. Logan “is brilliant, but it was still a missed opportunity.”

It also drew criticism from lawmakers in Congress. Senator Bob Menendez, who had publicly called for the appointment of a Latino to either the Dallas or Boston Fed posts, voted against the renomination of Chair Jerome Powell because of the Fed’s “serious diversity problem.”

The central bank will soon have two more top openings when the leaders of the Kansas City and Chicago Fed banks step down next year upon reaching the mandatory retirement age. Both banks have already begun the search for new leaders, and while the process includes public input sessions, the actual selection of finalists and the ultimate nominee—who is then voted on by the Board of Governors in Washington—remains shrouded in secrecy.

Menendez and eight other senators in June asked the Fed to establish a more transparent process for appointing presidents and directors. Senator Pat Toomey, the ranking Republican on the Banking Committee that oversees the Fed, has expressed concern about lack of geographic and industry diversity among policy makers.