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 fostering equity — by driving down Black unemployment, for instance — could make it too hesitant to lift interest rates, allowing inflation to bubble up.

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

“Also I think we now realize that unemployment can go low for quite a long time without inflation being a problem — which will tend to help those groups,” he said.

Still, the Fed knows it’s in fraught territory. Mr. Powell avoids endorsing specific legislative packages. When Fed officials talk about inequality, they often discuss opportunity — a framing with more bipartisan backing.

There is a risk if the Fed is seen as a “quote unquote Democratic institution,” said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. It might lose support across political cycles, as with the Consumer Financial Protection Bureau, which is largely seen as a liberal project.

“The Fed always needs political support to do its job well and to 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 has generally come from Democrats — who have forced it to focus more on employment and reined in its 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 Michigan Democrat, has pushed the Fed to do more to get cheaper credit to states and localities, for instance.

Article source: https://www.nytimes.com/2021/04/19/business/economy/federal-reserve-politics.html