Federal Reserve

The economic issue they aren't talking about at the DNC

Democrats have been pushing their ideas for jobs and growth. So why are they ignoring the Federal Reserve?

 By Danny Vinik

The Democratic National Convention hasn’t been policy-heavy, but it has definitely showcased economics. On Tuesday, House Minority Leader Nancy Pelosi (D-Calif.) took the stage to talk about policies to help women and was followed by seven female lawmakers arguing for a wide range of economic policies, from raising the minimum wage to increasing infrastructure spending to investing in clean energy. Each speech lasted just a few minutes, but taken together they represented a detailed economic agenda for the country.

But one major economic issue was missing: The Federal Reserve.

The Fed is the most important economic institution in America, if not the world, but has been conspicuously absent from the entire convention. Sen. Elizabeth Warren (D-Mass.) did not mention it in her speech Monday night. Neither did Sen. Bernie Sanders (I-Vt.). In fact, a review of transcripts from prime time speakers during the first three nights reveals that not a single speaker mentioned the central bank.

Dry as it might sound, monetary policy is far more important to the economy than any of the politically catchy topics that tend to fill airtime. It seemed, from the campaign, that the Democrats might actually address it: both Hillary Clinton and Bernie Sanders endorsed reforms to how the Fed is structured, and the idea was actually included in the platform this year—a first.

Clearly, the party is starting to understand how important the issue is. Yet its absence from the DNC indicates that it still isn't a priority, or at least it’s still not seen as important as crowd-pleasing topics like the minimum wage. To an extent, that's a signal of what a Clinton administration and (possibly) Democratic Congress would prioritize in the years ahead.

“When Democratic policymakers, particular Sen. Warren or Bernie Sanders or the candidate herself, are ticking through the agenda, that should be on there,” said Jared Bernstein, the former top economist to vice president Joe Biden.

If the Democrats actually took on the Fed, what would they do? Policymakers still are expected to preserve the independence of the central bank, so they wouldn’t put significant political pressure on it to adjust interest rates to boost wages. But who’s actually on the Fed, and whose interests it represents, is something that politicians can influence.

A coalition of groups in recent years have begun putting more pressure on Fed Chairwoman Janet Yellen and Democratic officials to make sure that the central bank is implementing policies that benefit all Americans, not just Wall Street. One issue that has risen to the fore is the structure and diversity of the Federal Reserve itself. The Fed is made up of a Board of Governors in Washington, D.C., which includes a chair and vice chair, and 12 regional Fed banks across the country. Each regional bank has its own president and board of directors. Banks have a say in nominating many of those directors.

A report released in February found that 83 percent of Fed board members are white; nearly three-quarters are male. Nearly 40 percent come from financial institutions. Given the Fed’s role regulating the largest banks, that last statistic has proven particularly troubling for many liberal economists and progressive activists.

In their campaigns, both Clinton and Sanders endorsed policies to make the Fed more representative of the public. And the Democratic platform, for the first time, included a specific policy statement on Fed reform: “We will also reform the Federal Reserve to make it more representative of America as a whole, and we will fight to enhance its independence by ensuring that executives of financial institutions are not allowed to serve on the boards of regional Federal Reserve banks or to select members of those boards.” That statement represented a major success for progressive groups.

“I don’t think that anybody imagined that three months ago, 12 months ago or two years ago that the Democratic Party would ratify a platform this week that does what it says,” said Ady Barkan, a lawyer at the Center for a Popular Democracy who has been a leading advocate for the reforms. “No one was even talking about the notion that bankers should not select the people who serve on the Fed until this year.”

It’s not hard to see how a new and more populist Fed policy could actually fit into the rah-rah atmosphere at a convention; a “Fed that looks like America” has a certain ring to it. And regardless of one’s views of how the Fed should work, it feels like a missed opportunity: a chance for at least one party to focus voters’ attention on the kind of big-picture policy that really does help drive the economy.