The leaders of Federal Reserve banks have noted that with a more diverse board, the chances of making a policy mistake are lower.

A historic-high number of women and minorities occupy seats on the boards of the Federal Reserve's 12 regional banks in 2021, potentially furnishing the broadest range of input ever as the Fed's presidents, alongside the governors in Washington, attempt to moderate inflation without destabilizing the economy.

Many central bankers view the directors as a crucially valuable resource, believing that their chance of achieving an optimal outcome with their policy-tightening campaign is increased by the advice from such a variety of perspectives.

"I think the probabilities are far higher of achieving that gentle transition, that smoother transition," Mary Daly, president of the San Francisco Fed, said in an interview with Reuters.

Daly and her 11 colleagues, alongside the current six members of the Fed Board, are dealing with some of the most demanding decisions in their central banking careers in the forthcoming months.

After raising interest rates more than at any point since the 80s last year to battle excessive inflation, they now need to find the ideal point to end their efforts - a degree of borrowing costs that can slow an unexpectedly tough economy still being formed by the COVID-19 pandemic without causing significant harm in the form of large-scale job losses.

To do this, they'll be counseled by a vast army of PhD economists all across the Fed system.

They will also draw on the "haul" of firsthand information on the real economy that Jerome Powell, chair of the Fed, mentioned earlier this month from the regional Fed banks distributed around the country.

Central to obtaining that information, Fed bank presidents state, are their customary meetings with their boards, panels that until recently as 2018 were generally composed of bankers and businesspeople, the majority of whom were white men.

Years of initiatives by Fed leadership, plus pressure from lawmakers and community groups, have transformed the picture.

This year, of the 108 positions on the 12 Fed bank boards, 44% are taken up by women, and 41% by people of color, a review of the data reveals.

By comparison, even after a huge jump in the appointment of minority directors in the aftermath of the racial justice movements of 2020, the average board at publicly-traded U.S. companies is still only 26% women and 19% minority, according to a study by Scott Yonker of Cornell University.

Nine directors oversee each Fed bank's operations, three of whom are bankers. The six that are not bankers select a new president when the job becomes available.

In addition to selecting the regional bank leaders, directors "constantly provide essential insight into how monetary policy affects the economy," Raphael Bostic, president of the Atlanta Fed, told Reuters. "As we quickly tighten policy to address high inflation, their diverse perspectives help us understand how our actions affect Americans living in a very broad range of circumstances and

inform how we can best calibrate policy to avoid unnecessary disruption."

Bostic's own board, in fact, this year achieved a milestone for the Fed system. For the first time, the Atlanta Fed board now has a Black woman amongst the ranks of its commercial banker directors, formerly the least diverse of the three director classes comprising the boards.

The directors are always coming up with suggestions of people and businesses to talk to regarding policy effects and the economic outlook, according to Daly and others.

A record number of women and minorities hold seats this year on the boards of the Federal Reserve's 12 regional banks, providing

perhaps the most diverse range of input ever as those banks' presidents – alongside Fed governors in Washington – grapple with how to slow inflation without tanking the economy.

Fed bank directors typically stay out of the spotlight, but many U.S. central bankers view them as a critical resource. Some argue that the prospects for a best-case outcome to their policy-tightening campaign are heightened by the advice from such a wide spectrum of voices.

“I think the probabilities are far higher of achieving that gentle transition, that smoother transition,” San Francisco Fed President Mary Daly told Reuters in an interview.

Daly, her 11 bank president peers, and the six current members of the Fed Board face some of the toughest decisions in their central banking careers in the months ahead.

After raising interest rates by the most since the 1980s last year to combat too-high inflation, they now want to find the right stopping point – a level of borrowing costs that can slow a surprisingly resilient economy still being reshaped by the COVID-19 pandemic without causing extensive harm in the form of large-scale job losses.

To find it, they'll be advised by a small army of PhD economists across the Fed system.

They will also draw on what Fed Chair Jerome Powell called earlier this month a “haul” of anecdotal information on the real economy from the regional Fed banks that dot the country.

Central to getting that information, Fed bank presidents say, are their regular huddles with their boards, panels that until as recently as 2018 had largely been composed of bankers and business leaders, most of them white men.

Years of efforts by Fed leadership, as well as pressure from lawmakers and community groups, have changed the picture.

This year, of the 108 spots on the 12 Fed bank boards, 44% are filled by women, and 41% by people of color, a review of the data shows.

By comparison, despite a considerable increase in the appointment of minority directors since the upheavals over racial justice in 2020, the average board at publicly traded U.S. companies is still just 26% women, and 19% minority, according to an analysis by Cornell University professor Scott Yonker.

UNSOLICITED INSIGHT

Nine directors oversee each Fed bank's operations, three of whom are bankers. The six that are not bankers select a new president when the job opens up.

In addition to picking the regional bank leaders, directors “always provide important insight into how monetary policy impacts the economy,” Atlanta Fed President Raphael Bostic told Reuters. “As we quickly tighten policy to address high inflation, their diverse perspectives help us understand how our actions affect Americans living in a very broad range of circumstances and inform how we can best calibrate policy to avoid unnecessary dislocation.”

Bostic's own board, in fact, this year marked a milestone for the Fed system. In a first, the Atlanta Fed board now has a Black woman among the ranks of its commercial banker directors, long the least diverse of the three director classes comprising the boards.

The directors are constantly offering up recommendations of people and businesses to talk to about policy impacts and the economic outlook, according to Daly and others.

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