Sarah Bloom Raskin, in her role as Assistant Treasury Secretary at the Treasury Department in Washington, October 2, 2014.
Yuri Gripas | Reuters
President Joe Biden will nominate Sarah Bloom Raskin as the next deputy supervisor of the Federal Reserve, arguably the most powerful banking regulator in the country, according to people familiar with the matter.
Biden will also name Lisa Cook and Philip Jefferson as governors of the Federal Reserve, according to people who asked not to be named to speak freely.
Each candidate will be questioned in the coming weeks by the Senate Banking Committee, the congressional body responsible for reviewing the president's appointment to the central bank. Should the Senate confirm her nominations, Cook would become the first black woman to serve on the Fed's board, while Jefferson would become the fourth black man to do so.
That committee on Tuesday held a hearing on the nomination of Fed Chair Jerome Powell, whom Biden wanted to nominate for a second term. A similar hearing was held on Thursday for Fed Governor Lael Brainard, whom Biden had named as the next central bank vice chair.
In electing Raskin for vice chairman oversight, Biden seeks to deliver on Democrats' promises to strengthen post-financial crisis legislation and restore aspects of a rule named after former Fed Chair Paul Volcker that will improve the ability of the Banks had restricted trading for their own profit.
Raskin has Fed experience and was the Federal Reserve Governor from 2010 to 2014 before serving as Deputy Treasury Secretary under the Obama administration. She is married to Rep. Jamie Raskin, D-Md.
Powell and Brainard are expected to sweep the Senate with no fanfare and bipartisan support, but Raskin, Cook and Jefferson could see tougher odds for confirmation. Republican Senator Pat Toomey of Pennsylvania, the senior member of the Banking Committee, was quick to evaluate Biden's latest decisions.
"Sarah Bloom Raskin has specifically urged the Fed to pressure banks to cut lending to traditional energy companies and ban those employers from any Fed emergency lending facilities," he said in a statement Thursday night. "I have serious concerns that it would abuse the Fed's narrow statutory mandates on monetary policy and banking supervision to actively involve the central bank in capital allocation."
"I will look closely to see if Ms. Cook and Mr. Jefferson have the necessary experience, judgment and political views to serve as Fed governors," he added.
While Jefferson's name has surfaced in more recent closed-door discussions as governor, Cook's nomination has been well telegraphed. CNBC reported in May that she was Senator Sherrod Brown's top pick for governor, the chair of the Banking Committee and a Democrat from Ohio.
"With these nominees, President Biden is showing the country what a Federal Reserve looks like that stands on the side of workers and their local communities," Brown said in a statement Friday morning. They will "bring important perspectives to the Federal Reserve Board on the economic issues facing women, black and brown workers, and rural and industrial communities across the country."
Cook is Professor of Economics and International Relations at Michigan State University. She also serves on 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 Advisors.
Jefferson is now vice president for academic affairs and dean of faculty at Davidson College. His decades-long academic career has focused on labor markets and poverty.
Notable work of his includes a 2005 study that assessed the costs and benefits of monetary policy that fosters a "high-pressure economy," in which the Fed provides easier access to cash and lower interest rates to fuel tighter labor markets .
He and other economists, including Brainard, have argued – in general and barring exceptional economic conditions – that the added benefits of lower rates at peak employment outweigh the potential for warmer inflation.
Raskin and regulation
Since leaving the administration, Raskin has urged the Fed and other financial regulators to take a more proactive role in addressing the financial risks of climate change.
"While none of their regulators have been specifically designed to mitigate the risks of climate-related events, each has a mandate broad enough to include those risks within the scope of tools already given them by Congress," Raskin wrote in September .
"Given the unpredictable – but clearly amplifying – impact of climate change on the economy, US regulators need to step out of their comfort zone and act early, before the problem worsens and becomes even more expensive to address," she added.
Former Vice Chairman for Oversight Randal Quarles, who recently left the Fed, played a key role in reducing capital requirements for US banks with assets under $700 billion and relaxing the Volcker Rule's scrutiny rules Businesses of JPMorgan Chase, Goldman Sachs and other investment banks.
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Fed officials who advocate looser regulation argue that the industry is well capitalized and does not need some of the tighter measures enacted in the wake of the crisis.
Many Democrats, including Massachusetts Sen. Elizabeth Warren, have backed down, saying rollbacks make the banking sector more vulnerable to shocks and prone to excessive risk-taking.
The nominations come at a precarious time for the Fed, which in recent weeks has begun to taper its easy-money policy year-on-year amid recovering employment and the highest inflation since 1982.
During periods of normal economic activity, the Fed adjusts short-term interest rates to maximize employment and stabilize prices.
If the Fed wants the economy to warm up, it can lower the cost of borrowing to boost housing and broader economic activity and employment. But if it's worried about an overheated economy or rampant inflation, it can raise interest rates to make borrowing more expensive.
In times of economic distress, the central bank can also use broader powers and buy large amounts of bonds to keep borrowing costs down and boost financial markets with easy access to cash. This happened in 2020 with the arrival of the Covid-19 pandemic, a move that served to reassure traders and reassure companies worried about liquidity.
Bond yields fall when their prices rise, meaning these purchases force lower interest rates. But the cessation of these types of emergency liquidity measures — and the prospect of higher interest rates — may have the opposite effect on markets.
The release of the Fed's last meeting minutes in early January, which showed several officials in favor of an early balance sheet trim and interest rate hike, sparked a sell-off on Wall Street.