Breaking the bank

A powerful U.S. Senator rebukes the Minneapolis Fed for playing politics with issues outside its ‘statutory mandate.’

The powerful ranking member of the U.S. Senate Banking Committee is calling on Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, to cease the bank’s aggressive political lobbying to amend the education clause of the Minnesota Constitution. Senator Pat Toomey (R-PA) sent a letter to Kashkari challenging how the bank “has embraced politically-charged social causes far outside of the Federal Reserve’s statutory mandate” under Kashkari’s leadership.

This is the third letter Toomey has written to Kashkari. The first two letters focused on the “woke mission creep” related to the Minneapolis Fed’s sponsorship of the “Racism and the Economy” event series. The first demanded records related to the event series and any memos or emails with information on the impetus behind the focus on racial justice issues. The second followed up on this request after Kashkari failed to provide any of the records requested.

The most recent letter focuses entirely on the improper use of the bank’s resources to lobby for the adoption of the Page Amendment to the Minnesota Constitution. As the bank’s website explains, this amendment aims to “make quality public education a civil right for all children in Minnesota.” Toomey’s letter notes:

“This amendment is highly political, as it wades into an ongoing debate about whether government-run school systems are preferable to parental choice in education. It is also controversial because it could be used by liberals to challenge education spending levels in court and give activist judges grounds for overriding levels set by the state’s legislature, which is elected by and accountable to voters.”

It goes on to itemize a number of improper actions Kashkari and the bank have taken to lobby in favor of the amendment and explains how such action “plainly violates” the Minneapolis Fed’s Code of Conduct.

Back in January, American Experiment sent letters making a similar demand to the board of directors of the Minneapolis Fed and the Federal Reserve Board in D.C. The letters asked that they exercise their general powers of supervision over the Minneapolis Fed employees and Kashkari to stop this lobbying campaign.

In response, American Experiment received a letter from Srilata Zaheer — the chair of the Minneapolis Fed board and the Dean of the Carlson School of Management at the University of Minnesota — in which she expressed the board’s full sup- port for the Minneapolis Fed’s work on the Page Amendment. This letter represents a full admission that the Board is openly and willingly violating the decades-old Federal Reserve Board of Governors political activity policy that governs their actions. Sen. Toomey referred to this endorsement as shocking.

The press release accompanying Sen. Toomey’s letter also highlighted a new report published by the Mercatus Center at George Mason University that shows an increasing share of the papers published by Federal Reserve Banks across America are devoted to activist topics, including inequality, climate, race, and gender. The research shows the percent of papers coded as activist were in the range of four to eight percent from 2006 to 2013 and then grew to 21 percent in 2021.

At 32 percent, the Minneapolis Fed alongside the Boston Fed published the highest share of activist papers in 2020 and 2021. Atlanta, Chicago, St. Louis, and San Fran- cisco came in around 20 percent, with New York and Philadelphia publishing less than 10 percent. In one positive sign, the Minneapolis Fed website has changed the specific initiatives they highlight on their homepage, likely a response to Toomey’s letter. Gone are the bank’s activist initiatives on Racism and the Economy, Page Education Amendment, Minimum Wage, and Early Childhood Development. They have been replaced by more bank-appropriate topics: Inflation, Employment & Labor Markets, and Region & Community. Though, it still highlights Early Childhood Development — a long- held priority initiative for the bank.

Critics charge that highlighting the Page Amendment over inflation and employment when inflation is hitting 40-year highs exposes just how utterly tone deaf the Minneapolis Fed has become. Or maybe it just represents how committed they are to activism if it required oversight from the U.S. Senate to spur even this superficial change.