March 18, 2020 at 5:00 am ET
On Sunday, the Federal Reserve dropped its benchmark interest rate to near zero, in addition to launching a new round of quantitative easing, a program that will include $700 billion in purchases of Treasuries and mortgage-backed securities.
Overall, the move is positive, since the Fed is responding aggressively.
One question concerns the impact of Fed policies on all communities, specifically the Black community. “According to BLS, Black and Hispanic workers are more than twice as likely to receive poverty-level wages compared to their white counterparts,” the website NewsOne wrote in a March 13 article. “About 8 percent of Black and Hispanic workers earn wages below the poverty level compared to 4 percent of the white workforce. Black women workers suffer the most with 10 percent classified as the working poor, compared to 3.5% of white men.”
In a press release issued Sunday, the Federal Reserve said that it is “encouraging banks to use their capital and liquidity buffers as they lend to households and businesses who are affected by the coronavirus.”
The Fed does not, however, specifically request and require that banks do so in a non-discriminatory manner. This implies that monetary policy tactics designed to stimulate activity in large financial institutions will be less effective in reaching the working poor.
We are concerned given the lack of a person of color on the Federal Reserve Board, and due to the fact that the 2008 financial crisis had a disproportionately negative impact on Black communities, as noted in the Fed’s own research.
As we suggested to Alan Greenspan in 1998, we again would like to see the Fed’s asset purchases specifically include mortgage securities with loans to Black borrowers originated by Black-owned banks (as long as those banks are actually making loans to Blacks; many Black banks do not.)
In 1992, we developed the first targeted FNMA Mortgage-backed Security (MBS) investment CRA securitization, an MBS pool backed by loans from minority financial institutions. And we offered to help the Fed use this tool to address mortgage credit access problems in the Black community.
Greenspan refused our initial request, only to have the Fed adopt our general strategy — leaving aside Black banks — as part of the QE Program after the 2008 financial crisis.
It would be a shame if all communities are not benefited by this Fed policy action, especially since all communities are vulnerable to COVID-19. We can only hope they will be more inclusive this time.
William Michael Cunningham is an economist and impact investing specialist at Creative Investment Research in Washington, D.C.
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