Why Biden’s Fed Nominees Are Suited for This Moment
February 3, 2022
By Felicia Wong
The Federal Reserve is one of the most powerful institutions in the United States. As such, the question of who should chair and serve on the Fed Board of Governors—like the question of who should be nominated to the Supreme Court—can become a matter of fierce political debate. That debate is currently underway. This week, Sarah Bloom Raskin, Lisa Cook, and Philip Jefferson, three of President Biden’s five nominees to the Board of Governors, will appear before the Senate Banking Committee for their confirmation hearings. Raskin and Cook, in particular, have drawn fire.
The criticism of President Biden’s slate of candidates for the Federal Reserve Board is wrong in several ways. The attacks reflect embedded partisan hatred that have nothing to do with the qualifications of these nominees. They also reflect the material interest of oil and gas companies in preserving the status quo, which benefits their bottom line at the expense of our planetary health.
But some of the attacks reflect a misunderstanding of what the Fed does. Understanding the Fed’s broad mandate–to promote the health of the US economy––sheds light on the process, and confirms that the president’s nominees are the right ones to help shepherd our economy through these perilous times.
What Does the Fed Do?
The Fed has three jobs.
- First, it sets monetary policy by setting interest rates, or the price of money. It thereby acts as a kind of thermostat, guiding the economy according to two goals: strong labor markets and stable prices. This is the “dual mandate” that gets most of the focus in conversations about the Fed’s role.
- Second, the Fed is a bank regulator, monitoring risk to the entire financial system, especially large bank holding companies and other nonbank financial companies deemed “systemically important.” Part of the Fed’s job is to mitigate excessive risk, which should include the risk of destruction caused by a changing climate.
- And third, the Fed has a role in promoting community development and investment—in part through researching what works, and in part through its oversight of the Federal Reserve System of banks nationwide.
Why These Nominees Are Suited
Understanding the range of the Fed’s work shows why these nominees are so well suited to this moment.
Labor Markets. Under the chairmanship of Jerome Powell, whom President Biden has renominated, the Fed has led an unprecedentedly strong job market recovery—in the face of a global pandemic that, two years ago, experts feared would cause Great Depression-level mass unemployment and starvation. Instead, we have seen the opposite: the fastest employment rebound in modern history. As my colleague Mike Konczal argues, the revolution in thinking at the Fed, a traditionally conservative institution, has pushed the US economy beyond the bounds of what many thought possible in the labor market—a win for workers and families. And, as my colleague Suzanne Kahn has noted, full employment would make it possible to address the many other crises our nation faces.
One of the next tasks for the Fed is to institutionalize this shift in thinking and ensure that its understanding of full employment does not inadvertently codify a Black unemployment rate that is far higher than the white unemployment rate. Dr. Cook’s expertise on how labor force participation may evolve across class, race, gender, age, and geography—as well as her nuanced understanding of entrepreneurship and dynamism—will serve the Fed well as it continues to advance its price stability and maximum employment “dual mandate.”
Bank Regulation. To fulfill its other duties, the Fed can and must use its regulatory powers to address the risks the climate crisis poses for the financial sector and for the economy.
Sarah Bloom Raskin, President Biden’s nominee for the vice chair of supervision role, has the knowledge, acumen, and commitment to transparency to help the financial sector manage these risks responsibly. She is a steady and experienced hand, having served as Deputy Treasury Secretary and a member of the Fed Board. This is why the Institute of International Bankers and the American Bankers’ Association support her candidacy. Her leadership will allow the Fed to join the ranks of other G20 central banks, including the European Central Bank and the Bank of England, in mitigating climate risk in an orderly manner—taking a precautionary stance, issuing clear guidance to banks, and requiring that they stress test their assets to ensure that climate emergencies do not leave the system decimated.
Economic Dynamism and Community Investment. The Fed—as a research institution, a leader in setting the terms of our economic understanding, and an institution overseeing the network of a dozen Federal Reserve Banks across the US—must understand the sources of economic investment in our diverse and growing country. Dr. Cook’s decades of work in government and academia have given her an informed perspective and sound judgment. Her research on the reasons economies can become either sclerotic or dynamic ranges from a deep historical look at patent filings in the US to work on economic resilience in Russia, the eurozone, and East Africa in the wake of crises.
From the wages we earn at work to the prices we pay at the grocery store, the Fed’s decisions make a difference in the day-to-day lives of every American. Sarah Bloom Raskin, Lisa Cook, Philip Jefferson—and the entire slate President Biden has nominated—have the experience and diversity of thought needed for the job at hand: building on the Fed’s success in navigating our COVID-induced economic crises and helping to create a strong and stable economy for all of us.