A Diverse Fed Can Reach Underrepresented Groups

Abstract

Increasing the diversity of economic policy bodies has taken center stage worldwide, but whether and why diversity matters is unclear. In a randomized control trial that varies the salience of female and minority representation on the Federal Reserve’s monetary policy committee, the FOMC, we test whether diversity affects how Fed information influences consumers’ subjective beliefs. Women and Black consumers form unemployment expectations more in line with FOMC forecasts and trust the Fed more after realizing that the FOMC is more diverse than they thought. Women are also more likely to acquire Fed-related information when associated with a female FOMC member. White men, who are overrepresented on the FOMC, do not react negatively. Heterogeneous taste for diversity can explain these patterns better than homophily. More diverse economic policy bodies thus reach underrepresented groups without inducing negative reactions by others, which increases the aggregate effectiveness of policy communication.

Keywords: gender, race, subjective beliefs, monetary policy, trust, central bank communication, survey experiments

JEL Classification: D84, E52, E58, E70, G53