From its grand, marble headquarters facing the National Mall, the Federal Reserve closely guards its independence from politics. Yet this past week’s slate of Fed nominees can also be seen as a direct link to the economic agenda stemming from another gleaming white building less than a mile away.
Fed experts say the package of nominees goes a long way to fulfilling Biden’s promise to make the Fed more reflective of the country it serves. And the decisions come at a time of enormous consequence. Fed policymakers are contending with the highest inflation in 40 years, and they face the crucial test of reining in inflation without jeopardizing the labor market and overall recovery. They must also use their broad-based tools to sustain a recovery that lifts all Americans — without declaring victory before the economy’s most marginalized workers and households have a chance to join in.
“This group will bring much needed expertise, judgement and leadership to the Federal Reserve while at the same time bringing a diversity of thought and perspective never seen before on the Board of Governors,” Biden said in a statement Friday.
Some economists say these changes to Fed leadership go far beyond the board’s makeup, extending to how the Fed understands the economy itself. Black Americans often experience a different economy than other racial groups.
Even before the pandemic, the unemployment rate for Black Americans hovered around twice the rate for White Americans. By many measures, the Black-White economic divide was as wide in 2020 as in 1968, with White wealth soaring in the intervening decades while Black wealth stagnated.
The coronavirus recession then widened a whole range of racial disparities — on the economic front and in public health. Last month, the unemployment rate actually increased for Black workers, to 7.1 percent. It is 3.2 percent for White workers.
Cook and Jefferson’s confirmations would mark the first time the Fed board has included more than one Black governor at once, according to research from Kaleb Nygaard, an expert on Fed history at the Yale Program on Financial Stability. William Spriggs, chief economist to the AFL-CIO and an economics professor at Howard University, emphasized the importance of that kind of representation as policymakers evaluate the economy.
“It will be harder to have a repeat of the kind of meetings that took place during the Great Recession, where no one discussed Black unemployment,” Spriggs said. “As well intentioned as I do believe [Fed Chair] Jay Powell is, it may need having some members of the board who are far more personally invested and experienced in what the problems may be.”
Cook, an economist at Michigan State University, would be the first Black woman on the Fed board. Her work has focused on macroeconomics, economic history, international finance and innovation, particularly on how hate-related violence has reduced U.S. economic growth.
Jefferson, an economist at Davidson College, would be the fourth Black man appointed to the board. His research has focused on inequality, how business cycles affect poverty rates and the role of education as a shield against unemployment.
In November, Biden made his first Fed appointments, tapping Powell for a second term and elevating Fed governor Lael Brainard to vice chair. Powell and Brainard, who had their confirmation hearings last week before the Senate Banking Committee, are expected to be confirmed.
If all of Biden’s nominees are installed, only two of the Fed’s seven top officials would be White men — Powell and Christopher Waller, made a governor by President Donald Trump. The confirmations would also mark the first time four women have served on the board at the same time, according to Nygaard.
The board has had a vacant seat since Biden took office. Many Fed experts had been waiting for Biden to nominate Cook, who worked on the White House’s Council of Economic Advisers during the Obama administration.
Democrats had also pressed the Biden administration to nominate a banking cop who would strengthen rules on the banking system and ramp up the Fed’s attention to climate risks. Many Fed experts expected Biden to name a regulator who would help appease liberals, including Sen. Elizabeth Warren (D-Mass.), who didn’t want Powell, a Republican, to get a second term as chair.
Raskin’s confirmation would mark her return to the Fed, where she served as a governor from 2010 to 2014. She served as deputy treasury secretary in the Obama administration from 2014 to 2017.
Raskin teaches at Duke University School of Law. She is a distinguished fellow at Duke Law School’s Global Financial Markets Center and has spoken about the economic threats posed by climate change.
In a column published in September, Raskin wrote that “financial regulators must reimagine their own role so that they can play their part in the broader reimagining of the economy.”
“Neither industry players nor regulators should wait around for someone else to tell them what to do and when to start,” Raskin wrote. “Most of the necessary tools are already there. What is lacking is a willingness to break the habit of acting only after a disaster.”
Yet Raskin’s emphasis on the climate could make for a harder political fight in a 50-50 Senate. Many Republicans argue climate issues are beyond the Fed’s mandate of stable prices and full employment.
“I have serious concerns that [Raskin] would abuse the Fed’s narrow statutory mandates on monetary policy and banking supervision to have the central bank actively engaged in capital allocation,” Sen. Patrick J. Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, said in a statement Thursday night. “Such actions not only threaten both the Fed’s independence and effectiveness, but would also weaken economic growth.”
Some Fed experts contend that many of Raskin’s views are in line with those of Powell and Brainard, who spoke in their confirmation hearings this past week about the Fed’s narrow but applicable role in responding to climate change. That can come in the form of new guidance for how large firms manage their exposure to climate risk, or scenarios that can help banks measure and test for those vulnerabilities.
Raskin’s appointment “really makes that even more likely, because the rest of the Fed, including Chair Powell, have all been indicating that’s the direction they’re working in broadly, and she’s been talking about it even more specifically,” said Sarah Dougherty, who directs the Green Finance Center at the Natural Resources Defense Council and previously worked at the Atlanta Fed.
“This is their sweet spot,” Dougherty added. “This is their job.”