Update 585 – Sea Change at the Fed?
Smooth Sailing for Slate of Nominees
Everything from the cost of living to the cost of capital depends on the membership of the Federal Reserve Board. Dr. Lisa Cook, Sarah Bloom Raskin, and Dr. Phillip Jefferson — nominated by the President to fill out the vacancies on the Board — would bring expertise and breadth of experience needed at the Fed to temper monetary policy and ensure financial stability against climate, cyber, and other risks.
The diverse perspectives of these nominees also make them (sadly) subject to smears, distortions, and misconstructions in the confirmation process. So, let’s set the record straight on this slate of experienced, independent nominees.
Join us next Monday, February 7, at 3:00 PM ET for the next PCAN call, “What a Progressive Majority Means for the Fed?” with former Fed Vice-Chair Donald Kohn, AFL-CIO Chief Economist William Spriggs, and Columbia Law School Professor Kathryn Judge.
Good weekends all,
Yesterday’s Senate Banking Committee hearing brought President Biden’s Federal Reserve nominees into the spotlight: Sarah Bloom Raskin for the Vice Chair for Supervision post and Dr. Lisa Cook and Dr. Phillip Jefferson for the Board of Governors.
While Democratic committee memebers asked questions focused on the nominees’ approaches to policy decisions facing the Fed, Republicans engaged in a tar-and-feather campaign questioning their qualifications and degrading their independence as experts in economics. Despite this, each of the nominees remained poised and laid out their common-sense approaches to monetary policy. The nominees explained they would take a cautious approach to inflation, citing both the blunt tools at the Fed’s disposal and the ever-changing data on the supply chain disruptions. Raskin, in particular, fielded multiple questions about the role of regulation at the Fed and hewed closely to the answers Chairman Jerome Powell and Governor Lael Brainard delivered during their hearings.
It shouldn’t shock anyone that the slate of nominees is qualified. After all, extensive experience is one of the most desirable qualities among Fed nominees. But what makes this slate unique is just how qualified each of them is in their own ways.
Raskin has had a more traditional route to her nomination with her experiences ranging from the same Senate Committee that questioned her to her previous role at the Fed. Raskin has also served as the chief financial regulator for Maryland and as the Deputy Secretary of the Treasury during President Obama’s second term. She has worked with financial institutions from small to large and has already been confirmed by the Senate twice on a bipartisan basis.
Cook’s government experience stems from her time as a Senior Economist in President Obama’s Council of Economic Advisors. She also advised both the Rwandan and Nigerian governments and has deep experience in international economics as an esteemed academic. This is a perspective sorely needed at the Fed as it helps steer the world’s most important economy. Cook has recently been elected as a director at the Chicago Fed and is a regular contributor to the Jackson Hole Economic Policy Symposium.
Jefferson has an academic resume stretching back decades and previously worked as a research economist at the Fed. He is reminiscent of many other nominees who have successfully served on the Board. His academic background in econometrics, macroeconomics, and poverty and inequality have equipped him to bring his research to the forefront of the Fed’s consideration of monetary and regulatory policy.
Fed’s Independence Respected
One of the most sought-after values in Fed nominees is their respect for the independence of the Fed. Congress regularly raises questions about independence to ensure Fed Governors are not taking cues from the White House on policy decisions. Independence prevents the Fed from being politically motivated when they are required to make tough decisions to protect the economy. The Trump administration tested the strength of the Fed’s independence continuously, but the Fed largely held firm in its commitment to independence, which is expected to be the same with these nominees.
Each of the three nominees is fully committed to the independence of the Fed. Raskin proved as much during her tenure on the Board. Cook and Jefferson have also shown no signs of violating the principle. There is little daylight between these three and Powell when it comes to monetary policy. The slate has shown an ability to make independent, data-driven decisions seeking consensus with the rest of the FOMC where possible when it comes to monetary policy.
When Senator Toomey asked about the regulation of and lending to the fossil fuel industry, Raskin assured the Committee that the Fed is not allowed, nor are any of the nominees inclined, to “make credit decisions and allocations based on choosing winners and losers.” Raskin doubled down on this commitment when asked about her May 2020 New York Times op-ed by Senator Kennedy by stating she was calling for the Fed not to pick winners and losers.
The real concern about the independence of the Fed doesn’t come from the White House; it comes from Congress. During the nomination hearings for Powell, Brainard, and these three, Senate Banking Republicans consistently asked questions meant to box in the nominees on policies such as incorporating climate risks into banking supervision. These lines of questions contradict the Fed’s responsibility to effectively monitor risks with the banking system and thus present a threat to the Fed’s independence. If Congress wants the Fed to ignore financial instability, Congress should realize the Fed’s independence is not only from the White House but from Congress as well.
A Fed That Reflects America
Ranking Member Toomey has highlighted throughout the process the lack of diversity among the nominees, specifically geographical and professional. This is almost laughable when considering the Senator’s idea of professional diversity is increased representation from the energy sector — aka the fossil fuel industry.
But Toomey raises an important point about diversity: we need a Fed that looks like America. And this slate of nominees is exactly that. Raskin would become another high-ranking woman at the Fed and the first woman to hold the Vice Chair for Supervision position. Given her background in financial regulatory policy, Raskin’s experience also provides perspective for her portfolio at a time when the country writ large is wary of the immense power of the financial sector. Raskin is representative of America and its concerns in this policy space and represents a groundbreaking achievement for a Board that would be composed of a majority of women if the slate is confirmed.
Jefferson and Cook bring their own backgrounds and perspectives to the Fed as well. Cook would be the first Black woman to hold the title of Fed Governor. Jefferson and Cook’s extensive academic backgrounds give them credibility on economic debates. And Cook’s experiences advising governments, both domestically and abroad, would bring invaluable perspectives for policy decisions to Board deliberations.
A Full Board, A New Fed
Republican opposition to these nominees is all but guaranteed, but Senate Democrats must stay united to ensure we have a full Fed Board for the first time since 2018 — one that reflects the diverse perspectives needed to tackle modern challenges. The first hurdle will be the Committee vote on February 15. The vote will be for all of the Fed nominees, including Powell and Brainard. After the committee vote, the floor vote for full confirmation is likely to take place in March. Following that, we will have a full Fed Board sworn in ready to equally weigh both mandates given to the institution. In other words, we will have achieved a New Fed fully committed to its mandated responsibilities of maximum employment and stable prices.