Biden Plays Capture the Federal Reserve

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President

Biden

has a chance to remake the Federal Reserve Board of Governors by filling multiple vacancies. This is especially important given inflation’s breakout, yet Mr. Biden’s latest nominees seem less worried about prices than pushing progressive policies that aren’t the Fed’s job.

Mr. Biden on Friday nominated former Treasury official

Sarah Bloom Raskin

as Fed vice chair for supervision, along with economists

Lisa Cook

and

Philip Jefferson

to vacancies on the Board of Governors. All three deserve scrutiny, but especially Ms. Raskin given what would be her regulatory power over banks and finance.

***

Ms. Raskin previously served as a Fed governor from 2010 to 2014. But her recent public statements have focused on climate change, especially using financial regulation to steer capital from fossil fuels to green energy.

In May 2020, with awful timing, she wrote a

New York Times

op-ed titled “Why Is the Fed Spending So Much Money on a Dying Industry?” That was amid the government’s pandemic shutdowns, when the Fed was acting to save the economy from collapse. The Fed established broad-based lending programs to prevent businesses that were otherwise sound from failing due to the shutdowns.

Ms. Raskin wanted the Fed to exclude fossil-fuel companies from these facilities. “The Fed is ignoring clear warning signs about the economic repercussions of the impending climate crisis by taking action that will lead to increases in greenhouse gas emissions at a time when even in the short term, fossil fuels are a terrible investment,” she wrote.

This showed colossally bad judgment. The crisis of the hour was Covid and a potential depression, not climate. Yet at that perilous moment Ms. Raskin was urging the Fed to discriminate against an industry that employed hundreds of thousands of people. Had the Fed taken her advice, many more oil and gas producers would have gone bankrupt, and energy prices would be even higher today.

“The Fed’s unique independence affords it a powerful role,” Ms. Raskin added. “The decisions the Fed makes on our behalf should build toward a stronger economy with more jobs in innovative industries—not prop up and enrich dying ones.” By unique independence, she apparently means it is unaccountable to voters. The Fed won’t pay a price at the ballot box if it destroys jobs.

Ms. Raskin expanded on her views in a June 2020 report “Addressing Climate as a Systemic Risk,” for the liberal investing outfit Ceres. “We must rebuild with an economy where the values of sustainability are explicitly embedded in market valuation,” she wrote. This will require “our financial regulatory bodies to do all they can—which turns out to be a lot—to bring about the adoption of practices and policies that will allocate capital and align portfolios toward sustainable investments that do not depend on carbon and fossil fuels.”

Note that phrase “allocate capital.” Among other things, the report recommended the Fed use climate stress tests to make banks account for the risk of government anti-carbon policies such as electric-car mandates and carbon taxes. It also suggested that the Fed deem fossil fuels risky assets and require banks to calculate the carbon emissions of their loans and investments.

Since this forced climate march will especially hurt lower-income Americans, both through destroyed jobs and higher energy prices, the report suggests the Fed use the “community reinvestment process to bolster the resilience of low-income communities to climate change.” Liberals have long used the Community Reinvestment Act to steer more lending to low-income neighborhoods.

Now Ms. Raskin apparently wants the Fed to use the law to force banks to finance green energy—for instance, electric-vehicle charging stations and rooftop solar panels—in minority communities. None of this is the Fed’s job under the law. The central bank’s regulatory command is financial stability, not making policy judgments that are the province of Congress, and not using regulation to allocate capital based on politics.

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The Fed’s vice chair has extraordinary power to set the agenda on bank regulation. Chairman

Jay Powell

plays a secondary role. Along with the other new Fed Governors, Ms. Raskin would be in a position to steer lending in ways that could undermine financial stability by punishing some industries while favoring others.

It’s no surprise that Ms. Raskin was pushed hard by

Sen. Elizabeth Warren

and other Democrats who want to use regulation to steer bank lending. This political play to control the Fed is ironic given that Democrats opposed

Judy Shelton

for a regular Fed governor position because she had written favorably about a price rule for monetary policy.

Ms. Raskin’s views should trouble Senators who care about the Fed’s independence. And they should especially concern Democrats, such as West Virginia’s

Joe Manchin

and Montana’s Jon Tester, whose state economies depend on fossil fuels.

“The @FederalReserve is no place for someone incapable of making policy decisions independent from political calculations,” Sen. Warren tweeted last November. Do Democrats only care about the Fed’s independence when a Republican is President?

Journal Editorial Report: There will be a political price for saying so many Americans sympathize with segregation. Images: AFP/Getty Images Composite: Mark Kelly

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