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SHIROFF: Diversify the Federal Reserve

Column: Policy Matters

The Federal Reserve can remedy inequalities, and diversifying their board can help them do so. – Photo by

This Thanksgiving, I am thankful that President Joseph R. Biden Jr. decided to reappoint the current Federal Reserve Chair Jerome Powell and to promote Lael Brainard to vice chair. Powell and Brainard both share a commitment to reaching full employment, which is the term economists use to refer to a point where everyone who wants a job has one.

Considering that the employment side of the Federal Reserve’s legal mandate has been disastrously under-emphasized in the past (as I discussed previously in The Daily Targum), this should be welcome news for many, especially for those of us who will graduate and enter the labor force this coming spring. 

Biden is not done with Federal Reserve appointments, though. There are three more critical appointments to make. Powell and Brainard are the top two figures on the Federal Reserve’s Board of Governors, which has a significant influence on American monetary policy and the economy as a whole.

The Board helps to decide when the economy is too fast and hot or too slow and cold. Think about it as the Supreme Court of economics. It is one of the most powerful economic institutions in the world. 

Perhaps it would surprise you, then, that one of the Board’s seats has been vacant for a while. In addition to that, some members will leave the Board early next year.

This gives Biden an excellent opportunity to reshape the Board: between Powell, Brainard and these three openings, Biden can appoint 5 out of the 7 total Board members. Even better, two of these nominees will get to serve for at least a decade, while others are unclear (yes, the rules on terms are confusing). 

In deciding who should be appointed, Biden should fill these seats with a diverse set of economists, for the benefit of us all. Of the current six-member Board, two are women. Of the 98 who have served on the Board since its inception in 1914, three were Black. The Board has generally been made up of qualified but older, white and male economists, who generally hold degrees from Ivy League schools.

Since the start of the pandemic, the Federal Reserve has focused on other unemployment rates, such as the Black unemployment rate, as part of an effort to make sure its policies met the needs of as many workers in the economy as possible. Next year, the Federal Reserve is predicted to begin slowing the economy down by raising interest rates, largely in response to recent high inflation and a strong job market.

Doing so would be a mistake — inflation is bad, but killing jobs is worse. The pandemic hit non-white workers the hardest, and the Black unemployment rate remains double the white unemployment rate. The recovery is incomplete for many and prematurely slowing the economy down would be a tremendous error.

A more diverse Board might be able to help the Federal Reserve avoid making this mistake. In 2015, the Federal Reserve raised interest rates, which put an undue break on job growth for Black, Hispanic and Latino workers and their entry into the labor market. A more diverse Board would also bring different backgrounds and perspectives to the institution with the largest influence over the economy.

At this point, it is no longer a secret that more diverse teams make better decisions. Few decisions affect American households and businesses more than those of the Federal Reserve, so getting them right is critical. The Board would strongly benefit from a wider set of backgrounds and life experiences among those at the top.

The American economy should work for all, and diversity at the top of the Federal Reserve would help. As the Class of 2022 heads into their final semester before graduation and the Class of 2023 prepares for the job search, it would be of tremendous benefit to have a pro-employment Federal Reserve that understands and seeks to remedy inequalities in the labor market.

Taylor Shiroff is a School of Arts and Sciences senior majoring in economics and minoring in mathematics and political science. His column, "Policy Matters," runs on alternate Thursdays. 

*Columns, cartoons and letters do not necessarily reflect the views of the Targum Publishing Company or its staff.

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