It would seem that the Federal Reserve has enough on its plate given the dual mandate in place for over 40 years when Congress amended the Federal Reserve Act by directing the Fed to “maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment and stable prices”. This alone would require masterful management of the monetary policy tools at its disposal, but despite the pressures involved with this mandate, the Fed has by default assumed a significant additional responsibility for the various crises that needed attention, such as the mortgage meltdown of 2008 in which the central bank became much more than a lender of last resort. Even so, these elements of “mission creep”, such as zero interest rate policy and quantitative easing, however you feel about the efficacy of the policy, could plausibly be considered within the skill set and dual mandate parameters of the Fed.
But now we are wading into deep water, for the Fed is being assigned the responsibility of determining whether or not its member banks are being sufficiently attentive to social justice considerations in their acceptance of risk and their lending and monetary policy decisions, to include climate change and racial equity. Several of the twelve Federal Reserve Banks have initiatives in process like the St. Louis bank “to support an economy in which everyone can benefit regardless of race, ethnicity, gender, or where they live”, with an emphasis on “economic outcomes experienced by historically marginalized groups”. The intervention into climate change exposure is particularly dangerous and obviously very far removed from the Fed’s expertise, not to mention that this new mission creep risks the independence of the central bank in wading into social agendas outside their purview. And if the Fed is to be the referee in the pursuit of “equity”, how far are we from the Federal Reserve’s allocation of credit? The Fed’s duty is to the economy, not “equity”. This nonsense needs to stop.