Biden to appoint Sarah Bloom Raskin as Vice Chairman of Oversight at the Fed

Sarah Bloom Raskin, in her role as Assistant Secretary of the Treasury at the Treasury Department in Washington, October 2, 2014.

Yuri Gripas | Reuters

President Joe Biden will nominate Sarah Bloom Raskin as the next Federal Reserve Vice Chair for Oversight, arguably the nation’s most powerful banking regulator, according to people familiar with the matter.

Biden will also nominate Lisa Cook and Philip Jefferson to serve as Federal Reserve governors, according to the people, who asked not to be named in order to speak freely.

In the coming weeks, each candidate will be questioned by the Senate Banking Committee, the congressional body charged with vetting presidential nominations at the central bank. If the Senate confirms their nominations, Cook would be the first black woman to serve on the Fed’s board of directors while Jefferson would be the fourth black man to do so.

That committee held a nomination hearing on Tuesday for Fed Chairman Jerome Powell, whom Biden has chosen to nominate for a second term. The committee held a similar hearing on Thursday for Fed Governor Lael Brainard, whom Biden has chosen to be the central bank’s next vice chairman.

In picking Raskin for the vice president’s job of oversight, Biden is seeking to deliver on Democrats’ promises to strengthen laws passed in the aftermath of the financial crisis and restore aspects of a rule named in honor of the former Fed Chairman Paul Volcker, who had limited bank capacity. trade for his benefit.

Raskin has Fed experience and served as central bank governor from 2010 to 2014 before becoming deputy treasury secretary during the Obama administration. She is married to Rep. Jamie Raskin, D-Md.

Powell and Brainard are both expected to clear the Senate with little fanfare and bipartisan support, but Raskin, Cook and Jefferson could see tougher chances for confirmation. Republican Senator Pat Toomey from Pennsylvania, a ranking member of the banking committee, was quick to round up Biden’s latest picks.

“Sarah Bloom Raskin specifically called on the Fed to pressure banks to choke off credit to traditional energy companies and exclude these employers from any Fed emergency lending facility,” he said. in a statement Thursday evening. “I have serious concerns that she is abusing the Fed’s narrow statutory mandates in monetary policy and banking supervision to get the central bank to actively engage in capital allocation.”

“I will closely examine whether Ms. Cook and Mr. Jefferson have the experience, judgment and political views necessary to serve as Fed governors,” he added.

While Jefferson’s name had surfaced in closed-door discussions to serve as governor more recently, Cook’s nomination was well telegraphed. CNBC reported in May that she was the first choice of Sen. Sherrod Brown, chairman of the banking committee and Democrat of Ohio, to serve as governor.

Cook is a professor of economics and international relations at Michigan State University. She is also a member of the steering committee of the Center for Equitable Growth, a Washington-based progressive think tank that counts several of Biden’s top economists among its alumni. She also served as a senior economist on the Obama administration’s Council of Economic Advisers.

Jefferson, meanwhile, is vice president of academic affairs and dean of faculty at Davidson College. His decades-long academic career focused on labor markets and poverty.

His notable work includes a 2005 study that assessed the costs and benefits of monetary policy that promotes a “high pressure economy” in which the Fed allows easier access to liquidity and lower interest rates to stimulate tighter labor markets.

He and other economists, including Brainard, have argued — in general and barring extraordinary economic conditions — that the added benefits of lower rates on peak employment are worth the potential for hotter inflation.

Raskin and the regulations

Since leaving government, Raskin has pressed the Fed and other financial regulators to take a more proactive role in addressing the financial risks posed by climate change.

“While none of its regulators have been specifically designed to mitigate the risks of climate-related events, each has a sufficiently broad mandate to encompass such risks within the instruments already given to it by the Congress,” Raskin said. written in september.

“In light of the unpredictable – but clearly intensified – effects of climate change on the economy, US regulators will need to leave their comfort zone and act early before the problem escalates and becomes even more costly to fix,” she added.

Former supervisory vice chairman Randal Quarles, who recently left the Fed, played a major role in lowering capital requirements for U.S. banks with less than $700 billion in assets and easing Volcker Rule audit rules for transactions made by JPMorgan Chase, Goldman Sachs and other Investment Banks.

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Fed officials in favor of a softer regulatory stance argue the industry is well capitalized and does not need some of the more restrictive measures enacted in the wake of the crisis.

Many Democrats, including Massachusetts Sen. Elizabeth Warren, pushed back and said the setbacks leave the banking sector more vulnerable to shocks and likely to take on excessive risk.

inflation battle

The appointments come at a precarious time for the Fed, which in recent weeks has begun to scale back its easy money policy in the face of a recovery in jobs and the highest level of year-over-year inflation since 1982.

During times of normal economic activity, the Fed adjusts short-term interest rates to maximize employment and stabilize prices.

When the Fed wants the economy to warm up, it can reduce borrowing costs to stimulate the housing market and broader economic activity as well as employment. But if he’s worried about an overheating economy or runaway inflation, he can raise interest rates to make borrowing more expensive.

In times of economic emergency, the central bank can also leverage broader powers and purchase large amounts of bonds to keep borrowing costs low and stimulate financial markets with easy access to liquidity. It did so in 2020 with the arrival of the Covid-19 pandemic, a move that helped appease traders and appease companies concerned about liquidity.

Bond yields fall as their prices rise, meaning these purchases have forced rates lower. But ending these kinds of liquidity measures in times of emergency — and the prospect of higher rates — can have the opposite effect on markets.

the The release of the latest Fed meeting minutes earlier in January, which showed several officials in favor of a balance sheet reduction and an upcoming rate hike, sparked a sell-off on Wall Street.

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