The Fed Faces Criticism as It Wades Into Climate and Equity Issues

And Michael Strain, an economist at the American Enterprise Institute in Washington, said he was concerned that the Fed’s focus on boosting equity – by lowering undeclared unemployment, for example – could make it too hesitant to raise interest rates and raise them Let inflation bubble in the air.

But Fed officials say the central bank is pragmatic, not political. Ms. Daly regularly points out that understanding the risks of climate change to the financial system is important for bank regulators and regulators. Mr Powell said during a webcast on Wednesday that the Fed sees such problems “through the lens of our existing mandates” – racial, gender and other disparities in economic outcomes “hold the economy back, for example.”

“I also think we are now realizing that unemployment can go down for quite a long time without inflation being a problem – which will tend to help these groups,” he said.

Even so, the Fed knows that it is in a difficult area. Mr. Powell avoids approving certain pieces of legislation. When Fed officials talk about inequality, they are often discussing opportunity – a framework with more bipartisan support.

There is risk in viewing the Fed as a “quote unquote democratic institution,” said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. It could lose support across political cycles, like the Consumer Financial Protection Bureau, which is largely viewed as a liberal project.

“The Fed always needs political support to do its job well and have the autonomy it wants,” said Sarah Binder, a political scientist at George Washington University who studies the Fed’s politics. Pushback that led to reform came generally from Democrats – who forced them to focus more on employment and curb their ability to help Wall Street – rather than Republicans, she noted.

And even now, some Democrats say the central bank could go further. Representative Rashida Tlaib, a Democrat from Michigan, has urged the Fed to do more, such as providing cheaper loans to states and communities.

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