Sunday, August 9, 2020

Congressional Democrats Propose Fed Third Policy Mandate: Fixing Racial Income Inequality

Click here to read the original Cautious Optimism Facebook post with comments

1 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff believes this is the next-to-last thing either the Federal Reserve or the U.S. economy need… one place above a Stalin/AOC 2020 presidential ticket.

Federal Reserve Chairman Jay Powell
Federal Reserve Chairman Jay Powell
From the Washington Post:

“Congressional Democrats introduced new legislation on Wednesday that would make reducing racial inequality in the U.S. economy an official part of the Federal Reserve’s mission.

“The Federal Reserve Racial and Economic Equity Act requires the central bank to take action “to minimize and eliminate racial disparities in employment, wages, wealth, and access to affordable credit.”"

“It would be the first major change to the Fed’s mandate since 1977 and would significantly alter the central bank’s focus. The Fed’s current mandate from Congress is to keep prices stable and maximize the number of Americans with jobs.”

“Presumptive Democratic presidential nominee Joe Biden recently released a similar proposal calling on the Fed to “aggressively enhance” its monitoring and targeting of “persistent racial gaps in jobs, wages, and wealth.” This latest bill in Congress goes a step further by explicitly requiring the Fed to work to close the gaps."

“The legislation was written by Sen. Elizabeth Warren (D-Mass.) on the Senate Banking Committee, Sen. Kirsten Gillibrand (D-N.Y.) and Rep. Maxine Waters (D-Calif.), chairwoman of the House Financial Services Committee.”

(Correspondent’s commentary) The Fed’s “dual mandate” of price stability and full employment is already controversial enough, the two policy objectives often deemed in conflict with one another especially when combined with the central bank’s unwritten third mandate of “financial stability” which it failed to achieve in the 1970’s inflation era, the 1990’s S&L crisis, and the 2008 financial crisis.

But whatever sliver of a chance the Fed has of meeting its conflicting mandates would be thoroughly shattered if forced to adopt “racial economic and credit equality” as its third official and fourth unofficial objective.

A proposal requiring the Fed to make race-based monetary and regulatory policy decisions would have been considered unthinkable even just ten years ago, a brazen attempt to stamp social engineering upon about the most color-blind institution left implementing government economic policy. But in 2020, the idea has crept its way into the mainstream of an increasingly radicalized and left-leaning Democratic Party, achieving Congressional bill status this week.

CO readers know the Economics Correspondent is no fan of the Fed, but this proposed legislation would make an already bad institution worse… much worse. 

If passed, the Correspondent believes the practical application of the law would produce Congressional oversight Democrats (think Maxine Waters) constantly pressuring the Fed for lower interest rates for longer periods of time, and demanding the Fed use its regulatory powers to force banks to lend more to uncreditworthy minority borrowers.

In case that two-pronged strategy doesn’t sound familiar, it’s precisely the formula that inflated the mid-2000’s housing bubble and precipitated the 2008 financial crisis and Great Recession which, ironically enough, resulted in widespread foreclosures and layoffs for minorities and ultimately further widened the racial wealth gap.

Read details in the Washington Post at:

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.