For the Federal Reserve, thinking about the massive income and wealth gaps facing Black Americans has also required introspection on whether or not the Fed itself is prioritizing diversity and representation.

“We acknowledge this as an issue,” Federal Reserve Bank of Atlanta President Raphael Bostic told Yahoo Finance.

A New York Times piece this month noted that of the Fed’s 870 total Ph.D. economists, only 11 are Black. In other words, Black voices make up only 1% of an institution’s economic team responsible for driving economic policy for a nation that is 13% Black.

“In some degree, it's a byproduct of the structural realities that we have in our society,” Bostic said. The Atlanta Fed chief, with a Ph.D. from Stanford University, is the first Black person in the Fed’s over 100-year history to head a regional reserve bank.

[Read the full transcript with Atlanta Fed President Raphael Bostic here.]

One major problem: the lack of minorities in economics and finance to recruit from. Black students accounted for only 13 of the 464 (2.8%) economics Ph.D.s awarded in 2019, according to data from the American Economic Association.

The Fed is inviting the scrutiny at a critical time for Black workers, who have been particularly impacted by the virus.

In the 10-year recovery period after the financial crisis, Black workers appeared to narrow the gap in labor force participation (a measure of how many workers there are relative to total people of working age).

But the pandemic has erased almost five years worth of progress, with the difference between the overall and Black labor force participation rates now as large as they were in 2016.

Getting Black workers back into the post-pandemic economy could prove difficult given the barriers that have been present in Black communities for decades.

Bostic said a lack of labor force engagement and development have made it challenging for African Americans and other minorities to get connected with job vacancies.

“All of these are at the structural level, and it's really just the processes and practices that we have that are really constraining access to opportunity for minorities across the board,” Bostic said.

Racism in the economy

After the murder of George Floyd in May last year, Minneapolis Fed President Neel Kashkari connected over the phone with Bostic in Georgia, where a similar story had played out months earlier, when Ahmaud Arbery, unarmed, was gunned down while jogging.

The discussion birthed the idea of a Fed-hosted “Racism and the Economy” series, where academics, business people, and other policymakers could discuss inequities in areas like education and housing— and what those stakeholders can do about it. All 12 reserve banks and the Fed Board in Washington are involved in the series, which they hope to run through at least the end of this year.

Beyond the conversations started, the Fed aspires to pull in new audiences to a central bank that has historically shied away from commenting on social matters as sensitive as racism.

Fed officials have made unusually personal remarks to that effect.

San Francisco Fed President Mary Daly spoke this month of the guilt she experienced 40 years ago after two of her Black students called her out for treating them more leniently than other students.

“I end up asking less of my two Black students from a low-income high school,” Daly said, recalling her time as a professor at the University of Missouri-Kansas City. “And all of us settle for persistent gaps—between Blacks and whites, men and women, rural and urban dwellers, those with and without advantage.”

Fed policy

Still, the Fed is grappling with what it can actually do to address the racial divide. Although the Fed has jurisdiction over regulations on credit access like the Community Reinvestment Act, the central bank’s greatest power is over monetary policy.

Fed officials have described their $7 trillion balance sheet and interest rate policies as “blunt” tools that cannot target specific demographics. Critics have argued that inflated stock prices can only further widen the wealth gap as low interest rates inflate asset prices, at the benefit of Wall Street firms.

But the Fed says it learned a lesson from the last crisis: monetary policy has the effect of pulling in more low-income and minority workers the longer the policy is kept easy.

“We will use our tools to support maximum employment and take that, you know, definition to heart,” Fed Chairman Jerome Powell said in June last year. “But, obviously, that’s something that’s going to require an all-of-society, all-of-government response.”

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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