Why this U.S. Fed insider isn't confident about it fostering the 'soft landing' that markets expect
President Joe Biden picked Sarah Bloom Raskin to be the Federal Reserve’s top banking regulator and economists Lisa Cook and Philip Jefferson to be governors completing his overhaul of leadership at the U.S. central bank.
The White House announced the nominations on Friday. The selections of Cook, who would be the first Black woman on the Fed’s board, and Jefferson, who would be the fourth Black man, keep a Biden promise to improve diversity at the central bank. If all three are confirmed by the Senate, it would mark two firsts for the seven-member panel: four women serving together, and two Black governors at the same time.
The nominations also would add experts focused on a broad recovery in the job market as officials seek to contain the hottest inflation in nearly four decades.
“This is a moment that calls for sound, independent leadership from the Board of Governors at the Federal Reserve,” Biden said in an e-mailed statement announcing the picks, adding that Raskin, Cook and Jefferson “will bring a breadth of knowledge, experience and expertise” to the Fed and help keep the U.S. “on a path to a strong, sustainable recovery.”
The three potential new Board members are in a position to join Jerome Powell -- whom Biden chose in November for another four years as chair -- and current Governor Lael Brainard, who the president aims to elevate to vice chair. Both Powell and Brainard testified this week in confirmation hearings before the Senate Banking Committee.
The newly configured Fed Board faces a challenging year ahead, with the ongoing pandemic restraining the economic recovery and contributing to soaring inflation. Investors expect the Fed to start raising interest rates from near-zero levels in March.
While making history with Cook’s nomination, the selection of Raskin to the vice chair for supervision position means the top three positions on Biden’s Fed would still all be held by White officials.
What Bloomberg Economics says...
“President Joe Biden’s choices to fill three open Federal Reserve Board seats will likely tilt the FOMC toward two rate hikes in 2023 from three as currently projected. The latest dot plot suggested a slim margin between three and four hikes in the year, but that masked the dominant dovish sentiment among voting members in 2023, even absent the impending nominees.”
-- Anna Wong and Yelena Shulyatyeva, economists
Raskin’s nomination as vice chair for supervision responds to progressive demands for someone who will bring a more pro-regulatory posture to the position than her predecessor, Randal Quarles, who was roundly criticized by Democrats as being too lenient on Wall Street.
Democrats such as Senator Elizabeth Warren of Massachusetts and progressive groups have had a keen interest in who fills the job, publicly calling for somebody who would stand up to megabanks.
The supervision vice chair is Washington’s premier banking overseer, established by the Dodd-Frank Act after the 2008 financial crisis. The official leads the oversight of financial institutions such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. and will likely influence decisions from bank capital rules to how to police the cryptocurrency industry.
Raskin is likely to be assailed by Republicans who have been railing against what they see as mission creep outside of the Fed’s narrow statutory mandates, including on issues like climate and racial justice. If all 50 Republicans unite against her, she would need every member of the Democratic caucus in the Senate to support her in order to be confirmed.
Pat Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, reiterated Thursday evening that he has “serious concerns” about Raskin.
“I have serious concerns that she would abuse the Fed’s narrow statutory mandates on monetary policy and banking supervision to have the central bank actively engaged in capital allocation,” Toomey said in a statement.
White House officials notified some U.S. senators about the news on Thursday night. The White House does not plan for the nominees to appear at an event with Biden, a person familiar with the matter said.
The picks are likely to join the dovish wing of the policy debate as officials balance their concerns over inflation against a commitment to seek full employment that is both broad-based and inclusive. If confirmed, they will vote on monetary policy at each Federal Open Market Committee meeting; their views could influence the pace at which the Fed raises interest rates in coming years, and how high the central bank goes.
Raskin was reportedly considered, and passed over, for other top jobs in the Biden administration, including head of the Office of the Comptroller of the Currency, and a new post within the Treasury heading up climate policy.
She is currently a law professor at Duke University. Under the Obama administration, she served as deputy secretary of the Treasury from 2014 to 2017. Before that she was a governor at the Fed and Maryland’s commissioner of financial regulation.
“No. 1, she’s brilliant. No. 2, she’s such a personable individual,” Kathleen Murphy, president of the Massachusetts Bankers Association, said Thursday.
Raskin is married to a prominent Democratic lawmaker from Maryland, Representative Jamie Raskin, who was lead manager for the second impeachment trial of former President Donald Trump.
The selections of Cook and Jefferson would bring diversity to a central bank that’s faced criticism about its homogeneity, especially in recent years. The economics profession more broadly has also been grappling with a past that often ignored or overlooked the impacts of racism and inequality on the economy.
Positions in the Fed and in economics as a whole have historically been held by White men -- the Fed’s Washington hub had just two Black Ph.D. holders at the end of 2020, among its roughly 400 economists.
Cook, an economics professor at Michigan State University, has dedicated a large part of her career to researching the ways in which economic inequality hampers growth.
She has studied the economic costs of inequality in a variety of ways, from the racially uneven distribution of Paycheck Protection Program loans during the pandemic to the impact of post-Civil War violence on Black invention and the lost value to the economy of fewer Black patents.
The appointment may not come without some friction, though. Some Republicans in the Senate have argued that tapping Cook for the Fed board would be controversial.
Jefferson, the vice president for academic affairs and an economics professor at Davidson College in North Carolina, has worked at the Fed twice before, serving as an economist in the board’s monetary affairs division from 1996 to 1997, and as a research assistant in the fiscal analysis section from 1983 to 1985.
He has authored and edited books and articles on poverty, and inequality has been one of the focus areas of his teaching. He has taught at Columbia University, the University of Virginia and Swarthmore College in Pennsylvania.
Kevin Hassett, who was Trump’s chairman of the White House Council of Economic Advisers, intends to “aggressively support” Jefferson throughout the nomination process.
“Phil Jefferson is someone I would have been 100 per cent comfortable telling President Trump to nominate to the Federal Reserve,” said Hassett, who taught at Columbia with Jefferson in the 1990s.