Sarah Bloom Raskin during her confirmation hearing on Thursday
Sarah Bloom Raskin said the Fed should not ‘pick or favour any sector at all’, later describing its independence as ‘sacrosanct’ © Getty Images

Joe Biden’s nominee for the Federal Reserve’s top regulatory position has told a US Senate committee it is “inappropriate” for the US central bank to pick winners and losers in the economy as she came under fire for her past advocacy of proactively addressing climate-related financial risks.

Republicans on the Senate banking committee homed in on Sarah Bloom Raskin’s views on climate-change issues during her confirmation hearing on Thursday. She had previously expressed support for rules that require big banks with exposure to fossil fuel-intensive industries to hold more capital as well as limitations on the types of companies the Fed seeks to support with its emergency measures.

“It is inappropriate for the Fed to make credit decisions and allocations. Banks choose their borrowers, not the Fed,” she said, in an attempt to deflect their criticism. “It is inappropriate for the Fed to pick winners and losers; doing so is not the proper institutional role of the Fed. That’s a cardinal principle of Fed supervision.”

Nevertheless, Republican senators on the panel accused her of flip-flopping, and Pat Toomey of Pennsylvania called her testimony “one of the most remarkable cases of confirmation conversion I have ever seen”. He warned that if Raskin was confirmed, the Fed would eventually adopt policies to allocate capital away from the “heavily carbon-emitting parts of our economy”.

John Kennedy, the Republican senator from Louisiana, quizzed her on a New York Times opinion piece she wrote in 2020 that questioned why the Fed was helping to prop up a “dying industry” by allowing oil, gas and coal companies to participate in its Covid-related emergency aid programmes.

Tim Scott, the Republican senator from South Carolina, warned any attempt by the Fed to champion certain sectors over others was “dangerous”.*

Raskin said the Fed should not “pick or favour any sector at all”, later describing its independence as “sacrosanct”.

In a statement following the hearing, Mitch McConnell, the most senior Republican in the Senate, said: “Opening this Pandora’s box would transform the Fed from an apolitical central bank into a hyper-political super-legislature.”

“Ms Raskin’s crusade would hurt working families, kill American jobs, make our nation less independent, and cripple the Fed’s independence in the process.”

If confirmed as vice-chair for supervision, Raskin, who previously served as deputy Treasury secretary under the Obama administration and as a Fed governor, would become the central bank’s top Wall Street watchdog responsible for setting the agenda on a range of issues, from the post-global financial crisis regulatory apparatus to cyber-security issues.

She testified alongside Lisa Cook, a professor of economics at Michigan State University, and Philip Jefferson, dean of faculty at Davidson College and a former research economist for the Fed’s board of governors.

Biden selected Cook and Jefferson to fill two vacant spots on the Fed’s board, meaning they — along with Raskin — would be voting members on the policy-setting Federal Open Market Committee. Cook would be the first black woman to sit on the board, while Jefferson would be the fourth black man.

Cook, who was a former staff economist on the White House Council of Economic Advisers during the Obama administration, has established expertise on the economic costs of discrimination as well as emerging markets. Jefferson previously ran the economics department at Swarthmore College and has studied poverty and economic growth.

All three candidates are expected to be confirmed, with support from Democratic moderates, including Joe Manchin, who hold sway in the upper chamber.

In addition to questions about the nominees’ records, senators questioned Biden’s picks on their thoughts about inflation, which is running at the fastest pace in 40 years.

Raskin said that reducing inflation should be a “top priority” for the Fed, which was echoed by Cook and Jefferson.

While the nominees are expected to lean towards a more gradual scaling back of the Fed’s policy support, their focus on inflation suggests they will fall in line with the consensus among top officials for a more aggressive turn towards tighter monetary policy.

“High inflation is a grave threat to a long, sustained expansion, which we know raises the standard of living for all Americans and leads to broad-based, shared prosperity,” Cook said.

She later added that policymakers needed to be “patient with the data”, given vast uncertainty about the trajectory of inflation. Toomey said he was “very disappointed” by Cook’s responses and said she failed to provide “any clear response” as to how she viewed inflation and the tools to contain it.

*This story has been amended since initial publication to note that Tim Scott represents South Carolina.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here.

Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here

Get alerts on US financial regulation when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article