The Federal Reserve, and thus the nation, avoided big trouble when nominee Sarah Bloom Raskin withdrew herself from consideration for a top post at the nation’s central bank.
Considering the deadlock that has otherwise stagnated the Senate, monetary liberals already have scored their absolute best-case scenario with regard to President Joe Biden’s top nominations for the Federal Reserve. Jerome Powell, who presided over an unprecedented monetary expansion that directly led to the worst inflationary crisis in 40 years, will almost certainly be confirmed for a second term as chairman, and Lael Brainard, the lefty favorite of the president’s backers, will likely become vice chairwoman as a consolation prize. Biden’s other two nominees for governors, Lisa Cook and Philip Jefferson, now also seem poised for confirmation.
The only collateral damage? Raskin, who ultimately withdrew her nomination for supervision after Sens. Joe Manchin and Susan Collins committed that they wouldn’t vote for her. Make no mistake: Raskin didn’t lose her bid because she’s a liberal. She lost because she did not understand the job.
Congress bestows the Fed, theoretically a central bank independent of political interests, with just three jobs: maximizing employment, stabilizing prices, and moderating long-term interest rates. That’s it, and, quite frankly, the Fed has done a fairly awful job at all three of these things. By focusing so intently on the former task, an ultimately futile goal after Congress decided to pay people to stay home during the pandemic and localities regulated older workers into early retirement, the Fed upended its ability to fulfill the latter two tasks. In pursuit of the full employment white whale, the Fed kept interest rates near zero for nearly a decade of growth. Even before the coronavirus came to the country, the Fed actually cut rates during the economic boom of mid-2019.
Even now, rates remain near zero as Powell and Brainard continue to suppress the speed of rate hikes. To understand just how badly they miscalculated with regard to regulating long-term interest rates, just consider that the last time inflation was this high, the federal funds rate was hiked well into the double digits.
All of this is to say that the Fed has three jobs, and it hasn’t done those particularly well, so it was ample cause for concern for Congress that Raskin decided to make up a whole new task for her nominated role. In a lengthy op-ed published last September, Raskin called upon financial regulators, seemingly including the Fed, to look “at their existing powers and [consider] how they might be brought to bear on efforts to mitigate climate risk.”
“While none of its regulatory agencies was specifically designed to mitigate the risks of climate-related events, each has a mandate broad enough to encompass these risks within the scope of the instruments already given to it by Congress,” she wrote, after explicitly naming the Fed.
The federal government has plenty of departments and agencies — too many, certain Founding Fathers might lament — to combat climate change. The Fed is explicitly not one of them. The Fed’s job is not to prop up the stock market before an election, cure cancer, or save the planet. Even attempting to do so would compromise the institutional independence upon which the global financial system or, at the very minimum, the institutional integrity of the world’s reserve currency relies.
Just how egregious was Raskin’s letter? It would be tantamount to Justice Amy Coney Barrett declaring that it is the job of a Supreme Court justice to reduce the number of abortions performed in the country. It is fine for a justice to have private and personal political positions independent of her job, but it cannot color her interpretation of the law, lest we sacrifice the independence of the court from political influence.
The Fed may have failed miserably over the past decade, but at the very least, its nominal independence from the rot corroding the rest of Washington lives to see another day.
