Blacks & the Federal Reserve: does the Board's lack of diversity affect your pocketbook? - impact of appointment of few African American governors on national economic policy - Column

Black Enterprise, July, 1994 by Frank McCoy

Whether you know it or not, the Federal Reserve System (the Fed) in washington, D.C., which regulates the U.S. banking and monetary system, affects your daily financial life. That is, unless you don't have a bank account or a charge card, and you never buy on credit. But if you do, your decisions are affected by changes in short-term interest rates. And since two-thirds of the U.S. gross domestic product is consumer-derived, interest rate changes have a major impact on economic growth.

That's where the Fed comes in, albeit indirectly. When your bank borrows money from the Fed, it lends money to you at a slightly higher interest rate. The Federal Reserve Board of Governors (FRB) Chairman Alan Greenspan announces the rate changes after he and his six fellow governors--all presidential appointees--approve them.

Since the Fed's creation in 1913, there have been 74 FRB appointees. However, only two minority men (both black) and four women (all white) are on this roster. The two African-Americans to serve on the FRB, Andrew F. Brimmer and Emmett J. Rice, are both members of the BLACK ENTERPRISE Board of Economists (BEBE).

The dissimilarity between those controlling monetary policy and the nation's population causes some people to ask if racial and gender considerations should be part of FRB nominations. The president's nomination guidelines are broad. He or she is directed to select a "fair representation of the financial, agricultural, industrial and commercial interests and geographical divisions of the country."

Brimmer, who served on the FRB from 1966 to 1974, rejects the idea of making selections based on gender or race. However, Brimmer, who was appointed to the FRB by President Johnson, says the selection process must be open and fair. "I do not advocate diversity because there is something uniquely related to race, ethnicity or gender which will be brought to the Board," Brimmer asserts. "The demand is for competent people and if they bring something else, that is a plus. But because of tradition and racism and sexism, there are very few minorities and women who have gotten in the FRB pipeline and into position to move up."

This year, Brimmer recommended fellow BEBE member Marcus Alexis for one of the Federal Reserve spots to be filled by President Clinton. Alexis is a Northwestern University economics professor and a former chairman of the board of directors of Chicago's Federal Reserve Bank. In April, Clinton appointed Alan Blinder and Janet Yellen to the Board.

Rice, who was an FRB governor from 1979 to 1986, says the board needs minority representation not because minorities will act differently--they won't--but their inclusion brings a realistic image to the Fed.

"If there is a case, as Clinton said, for making the government look like America," says Rice, who was appointed to the FRB by Jimmy Carter, "then there is a case for making the Federal Reserve look like America."