Powell’s Fed on defensive as diversity effort comes under fire
Amara Omeokwe and Catarina Saraiva
6 min read
(Bloomberg) — Donald Trump’s offensive against diversity, equity and inclusion programs is putting the US central bank in an uncomfortable squeeze. And so far, the Federal Reserve and its chair, Jerome Powell, appear to be falling in line with the president.
After Trump issued an executive order on Jan. 20 ending DEI programs across the federal government, the Fed took down pages on its website dedicated to diversity and inclusion, as did several of the central bank’s regional outposts. This week, the Dallas Fed backed out of plans to host an event for the Greater Houston LGBTQ+ Chamber of Commerce.
The apparent shift comes despite clear declarations from the Fed in recent years extolling the value of diversity at the central bank, and a requirement under the 2010 Dodd-Frank Act for the Fed and other federal financial bodies to pursue gender and racial diversity within their organizations. A Fed spokesperson said the central bank continues to comply with that law and others governing equal employment.
In his order, Trump called DEI “illegal and immoral discrimination.” But for DEI proponents, the Fed’s recent moves put at risk not only its efforts to diversify its workforce but also to better understand how its policies impact all Americans. It may also set a precedent of caving in to Trump’s pressures.
“It’s not clear why the Fed would comply with a non-binding executive order that conflicts with another clearly legal mandate,” said Graham Steele, a top Treasury Department official during the Biden administration and now a fellow at Stanford Law School. “If they’re willing to give on this issue, have they reduced the political pressure on themselves or have they just started to slide down a slippery slope of giving in?”
When asked about the executive order at a press conference Wednesday, Powell responded, “as has been our practice over many administrations, we are working to align our policies with the executive orders as appropriate and consistent with applicable law.”
The Fed spokesperson declined to comment on questions about how it is conducting diversity efforts. The Dallas Fed declined to comment on the event it backed out of hosting in Houston.
Tammi Wallace, co-founder and chief executive at the Greater Houston LGBTQ+ Chamber of Commerce, said she was shocked to receive a Jan. 27 email from the Dallas Fed saying it could no longer host the group’s event planned for Thursday. Wallace said she and organizers had to quickly find a new location for the event, which aimed to provide support for small businesses and promote entrepreneurship.
Through a chain of emails with the bank, Wallace said she learned the decision was prompted by the DEI-related executive order. The experience felt “like a rejection of who we are as an organization, a rejection of our community,” she said.
Diversity Priority
In some corners, the Fed has long been castigated over a lack of diversity, especially in its top ranks. Scrutiny increased after the murder of George Floyd by a Minneapolis police officer in 2020 spurred a national conversation about racial inequality. Critics questioned whether the central bank, one of the country’s most powerful policymaking bodies, was considering the experiences of the whole population.
But leadership has made efforts to address those questions.
The Fed and its regional banks have sponsored or supported events aimed at assessing inequalities in the economy and recruiting diverse candidates to the economics profession. The bank’s professional staff — especially its ranks of Ph.D. economists — remain largely White and male, but at the very top its policymakers have become more diverse. Former President Joe Biden appointed the first Black woman, Lisa Cook, and the first Latina woman, Adriana Kugler, to the Board of Governors.
“We’ve made diversity a priority,” Powell said in a July 2020 press conference. In a 2021 radio interview, he called the lack of diversity among the Fed’s staff “frustrating” and said the central bank would continue working to get better results.
“As an institution, we want to be a leader in diversity,” Powell said in the interview. “And my own experience, in the different things I’ve done in life, is that institutions that focus on diversity and do it well are the successful institutions in our society.”
A Careful Line
Compared to many federal agencies, the Fed enjoys a substantial level of independence. To preserve that, its chairs have long been careful to steer clear of partisan politics and hot-button topics. So with Trump back in the White House, Powell has good reason to walk a careful line on DEI. That’s especially true given Trump’s history of berating Powell over monetary policy, bank regulation and other issues.
After the Fed’s decision on Wednesday to hold rates steady as officials wait for more progress on reducing inflation, Trump wasted little time in taking them to task, invoking diversity efforts in his criticism.
“If the Fed had spent less time on DEI, gender ideology, ‘green’ energy, and fake climate change, Inflation would never have been a problem,” Trump wrote on the social media platform Truth Social. “Instead, we suffered from the worst Inflation in the History of our Country!”
The DEI-related retreats aren’t the only signals the Fed is looking to avoid clashes with the White House. The Fed’s vice chair for supervision, Michael Barr, announced in January he plans to resign from the post amid threats from Republicans that the new president would seek to remove him — a step Powell declared wouldn’t be legal. Barr, who didn’t leave his underlying post as a Fed governor, said a dispute over his position could be a “distraction from our mission.”
Scott Alvarez, the Fed’s general counsel from 2004 to 2017, said that while the Fed may remove some outward facing signs of its diversity initiatives, it must continue to comply with the requirements of laws such as the Equal Employment Opportunity Act that are designed to encourage a diverse workforce.
Dodd-Frank
Many of the Fed’s modern diversity obligations come from the Dodd-Frank Act, the law designed to shore up the US banking sector following the financial crisis of 2007-2008. It requires the Fed and other banking regulatory agencies each to have an Office of Minority and Women Inclusion, responsible for a range of diversity policies and initiatives.
Trump’s executive order “cannot override the requirements of the Dodd-Frank Act, federal anti-discrimination laws or the constitutional rights of employees,” California Representative Maxine Waters, the top Democrat on the House committee that oversees the Fed, wrote in a Jan. 24 letter to the Department of Justice and other agencies.
But outward compliance with the executive order, even if it’s accompanied by intentions to continue diversity efforts internally, will likely invite more scrutiny of the Fed, said Steele, the former Treasury official.
“Some of the opponents of things like diversity and equity, they’re smart enough to realize when agencies are doing window dressing versus when they’re doing substantive things,” Steele said. “There’s a reason to think pressure only increases from here.”
