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Biden seeks to reshape the Fed with a historically diverse list of nominees

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WASHINGTON — U.S. President Joe Biden on Friday named former Federal Reserve Governor Sarah Bloom Raskin to the Fed’s key regulatory post and economists Lisa Cook and Philip Jefferson to serve on his board of directors in what would represent a historic demographic overhaul of the most powerful central bank in the world.

The nominations – which appear likely to face some opposition from Republicans in the Senate – would fill the ranks of a seven-member panel that wields considerable influence over the world’s largest economy and would make senior management of the most racially and gender diverse Fed in its 108-year history. Both Cook and Jefferson are black.

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Biden’s picks for the Fed follow his decision to nominate Jerome Powell for a second term as central bank head and elevate Governor Lael Brainard to vice chairman and offer him the opportunity to leave a lasting imprint on a body that sets economic policies – especially on interest rates – that reverberate around the world.

The nominations were announced as Biden’s own plans for a post-pandemic economy ran into an unexpected spike in inflation and partisan wrangling in Congress – a factor that could also come into play during the confirmation process. candidates.

“This group will bring much-needed expertise, judgment and leadership to the Federal Reserve while bringing a diversity of thought and perspective never seen before to the Board of Governors,” Biden said in a statement. “They will continue the important work of guiding us down a path to a strong and sustainable recovery, while ensuring that price increases do not become entrenched in the long term.”

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CONFIRMATION BATTLE

The nominations drew immediate fire from the top Republican on the Senate Banking Committee, signaling a potentially difficult and partisan confirmation process in a legislative body Democrats control only by virtue of Vice President Kamala Harris’ dual role as President of the Senate.

“I have serious concerns” about Raskin, Sen. Pat Toomey of Pennsylvania said in a statement, adding that he believed she would try to prevent banks from lending to oil and gas companies and otherwise deviate from the two mandates of Congress that guide the Fed’s primary mission. – maximum employment and price stability.

Toomey and other Republicans repeatedly asked Brainard about his support for climate risk research during his confirmation hearing on Thursday https://www.Reuters.com/world/us/feds-most-important-task -is-control-inflation-brainard- says-2022-01-13. As for Cook and Jefferson, Toomey said he will “examine closely” whether they have the “experience, judgment and political views necessary to serve as Fed governors.”

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Senate Democrats, however, signaled their support, with Elizabeth Warren of Massachusetts, who has long called for stronger banking oversight, calling Raskin a “tough, thoughtful financial regulator with decades of experience at the state and federal levels.” .

MORE DIVERSIFIED FED BOARD

Cook, a professor of economics and international relations at Michigan State University, would be the first black woman to serve as Fed governor. Jefferson, a professor and senior administrator at Davidson College in North Carolina, would be just the fourth black man to serve on the panel and the first in more than 15 years.

Biden’s picks would mean the seven-member board of governors would include four women, also a first. Currently, the Fed’s board has just five members, all white, though that number will drop to four — two men and two women — after Vice Chairman Richard Clarida leaves the board on Friday, as previously announced. .

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“It’s clearly a changing of the guard,” said Harvard University professor Larry Katz. They are a “breakthrough new set of candidates who will bring important perspectives and representation to the board.”

IMMINENT DECOLLETAGE

The effort to make the Fed look more like America comes at a critical time. Inflation is at its highest level in decades. Unemployment is down, but U.S. employers have 3.6 million fewer workers on their payroll than before the coronavirus pandemic.

The Fed is debating how quickly and how much to raise interest rates and tighten monetary policy to contain inflation without shorting the labor market, a process that may be underway before Raskin , Cook and Jefferson are confirmed.

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Its current leaders have already signaled they are ready to start raising rates as early as March, reversing from an ultra-dovish stance that could test financial markets and influence the pace of recovery in an election year. which Congressional control is at stake.

At the head of the kingpin is Powell, who told the Senate Banking Committee during his nomination hearing on Tuesday https://www.Reuters.com/business/feds-powell-heads-hill-hearing-with-inflation- focus-2022-01- 11 that the economy no longer needs the significant support in place since the start of the pandemic, a point of view now widely shared by Fed officials.

Analysts don’t expect the newcomers — if confirmed — to argue against that view, at least initially.

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“Inflation is so high and the political pressure on the Fed is so strong (including from the Democrats) that we doubt they will oppose the will of the (policy-making) committee,” he said. writes Roberto Perli, economist at Cornerstone Macro. “Because all (candidates) have expressed their view in favor of a broader expansion of the labor market, however, we can expect them to resist a substantial tightening in the future.”

Raskin, who spent four years as Fed governor before being named assistant treasury secretary from 2014 to 2017, is expected to exercise tighter oversight on Wall Street than the former vice chairman of Fed oversight. , Randal Quarles, who left the Fed. at the end of last year.

Cook wrote extensively about the economic consequences of racial disparity and gender inequality, and grew up in the violence of school desegregation in the American South. Jefferson, who was a Fed researcher early in his career, has written extensively on wages, poverty and income distribution, although he hasn’t published recently.

Kevin Hassett, who chaired the Council of Economic Advisers under former President Donald Trump, said Jefferson was an “incredibly smart economist” and a serious scholar who should be confirmed by the Senate soon.

“He’s the kind of honorable, serious person the Federal Reserve should have.”

(Reporting by Andrea Shalal; Additional reporting by Trevor Hunnicutt; Graphics by Ally Levine; Editing by Dan Burns, Leslie Adler and Paul Simao)

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