The nation's central bank can't fix income, gender and racial disparities, but those problems matter to its core job of setting interest rates, two Federal Reserve leaders who vote on rates said at a conference that ended Tuesday in Minneapolis.
And at the moment, with unemployment and inflation data sending conflicting signals about how interest rates should move, the jobs data on women and minorities is getting extra scrutiny.
Top-line data indicate the U.S. is at full employment, but data that looks at subsets of the population suggest that may necessarily not be the case, Lael Brainard, a Federal Reserve governor, and Neel Kashkari, president of the Minneapolis Federal Reserve Bank, said in separate remarks at the conference. Both are voting members of the rate-setting Open Market Committee.
"While the policy tools available to the Federal Reserve are not well suited to addressing the barriers that contribute to persistent disparities in the labor market outcomes of different groups, understanding these barriers and efforts to address them is vital in assessing maximum employment," Brainard said.
She said the Minneapolis Fed's new Opportunity and Inclusive Growth Institute could produce insights "on how far the overall economy is from full employment."
Kashkari, who in March was the only member of the 10-person committee to vote against a rate increase, said that he was certain that data at the time showed there was still slack, or room to fill more jobs, in the U.S. "Whether there is still slack in the labor market is now less clear than it was in March," he said.
"We have to be closer, we know that," he added. "We are closer, but we don't know how far the shore is."
Kashkari said he will wait to see more data before deciding how to vote at the rate committee's next meeting in mid-June.
About two dozen economists and researchers participated in the inaugural conference for the Opportunity and Inclusive Growth Institute, which the Minneapolis Fed established to identify ways that it and other units of the central bank can tackle poverty and equality issues.
Kashkari and other executives said they believed the army of economists and researchers at the Fed and its 12 regional banks may be able to assist private and university researchers in ways that haven't been previously considered.
Among the research suggestions was one from Robert Putnam, a Harvard political scientist who has focused on opportunity gaps, to measure the effects of personal networks on economic outcomes. In his presentation, Putnam noted that many measures of civic involvement, social equality and income disparity took turns for the worse around 1964. President John F. Kennedy's admonition that Americans ask what they can do for the country, he noted, was thought to signal a new era of connection and engagement.
Instead, Putnam said, "That was actually 'Taps' for a period in which Americans had come to share deeply egalitarian norms and were about to step away from them."
Putnam noted the networks of friends and associates that people build for themselves greatly affect their employment and income and the Fed, with its resources, may be able to quantify that impact. "That was a very tangible idea that could lead to changes," Kashkari said.
Sondra Samuels, chief executive of the Northside Achievement Zone in Minneapolis, suggested that Fed researchers may be able to validate her organization's claims of the economic impact it has on children in the city. That may lead to policymakers in other states and cities paying for similar organizations, she said.
Kashkari cited her idea in describing the dispassionate, unbiased role he thinks the bank's economists and researchers can play for people who write laws and direct economic assistance. "If the Fed or other independent researchers were to analyze her model and conclude this is a good model that does have a good return on investment for taxpayers, I think policymakers would find that interesting to know," he said.