WASHINGTON -- Joe Biden's promise to bridge the racial economic gap needs buy-in from one powerful person -- Federal Reserve Chair Jerome Powell -- and he doesn't sound convinced.
The Democratic presidential nominee wants the Fed to "aggressively" target inequality, even leaving open the possibility of asking Congress to create a third mandate for the central bank. Biden has vowed to nominate minorities to the Fed's leadership ranks, and if he wins in November would have at least three opportunities to do so in a first term, including the chair.
Powell, a Republican appointed to the Fed's top job by President Donald Trump, has acknowledged that the central bank can run the economy hotter than once thought, helping the benefits of a tighter labor market reach minority communities.
But he's downplayed the idea of a direct role for the Fed in tackling racial inequality, saying in July that its underlying causes "are not related to monetary policy" and that fiscal efforts "and just policy generally: education, health care, all those things" can be more effective remedies.
Such reticence could put him at odds with a President Biden. Powell's current term as chair expires in February 2022.
In May, Powell said Fed policies "absolutely" don't add to the nation's economic inequality. Last month, he said that while wealth disparity is a "critical problem," central bankers "don't really have the best tools" to address it.
Powell could, however, use the Fed's role as a regulator to do more to encourage banks to support minority communities' access to credit and financing.
"It's undeniable that the Federal Reserve's policies have had an effect on the disparities," said Seth Carpenter, chief economist for UBS LLC who previously worked at the Federal Reserve Board. "When monetary policy is restrictive, unemployment generally rises, but for Blacks it rises more. It's traditionally been the practice to ignore these differential effects."
Biden wants the Fed to do more to acknowledge its role in the disparities. He's floated the idea of asking Congress to amend the Federal Reserve Act to require it to report on racial economic gaps and what policies it is implementing to close those.
The Fed has a dual mandate from Congress to promote maximum employment and stable prices. Although he has not explicitly called for a third mandate, Biden hasn't ruled it out, either.