Dec 4, 2020 - Economy

San Francisco Fed chief says Fed must do better on inequality

Picture of San Francisco Fed president Mary Daly

San Francisco Fed president Mary Daly. Photo: Nick Otto/Washington Post via Getty Images

While the Fed chair has downplayed and even denied the central bank's role in ratcheting up income inequality and the K-shaped recovery, other Fed members are taking responsibility and calling for change.

What happened: San Francisco Fed president Mary Daly took the subject head-on in a speech earlier this week, saying the Fed "will need to do more to ensure that the benefits of low interest rates and rising asset valuations can spread widely throughout the economy."

"The COVID-19 response made it clear that our interest rate policies and lending programs do not reach everyone equally. Many businesses and households are outside of the traditional banking system and do not have the same opportunities to refinance or initiate loans."
"We’ve heard repeatedly in the 12th District and across the country that these differences hampered the pandemic relief, slowing its delivery to many in need."
"To solve these issues, and increase the reach of the financial infrastructure, we will need to think outside of the traditional banking box. This could mean developing firmer partnerships with Community Development Financial Institutions and other nonprofit or small dollar lenders."
"These institutions are already connected to low- and moderate-income communities and are innovating to improve their reach among those most in need. It could also mean taking lessons from recent months and developing blueprints for lending relief programs that can be more equitably deployed next time they are needed."

Of note: Daly isn't the first Fed member to acknowledge the Fed's role in inequality. The subject of what the Fed can do to reduce rather than increase inequality was broached in October at the Minneapolis Fed's "Racism and the economy" event.

Go deeper