Senate needs to shore up the Federal Reserve

The US Federal Reserve’s next policy-making meeting in mid-March will be one of the most consequential in recent memory, with inflation running at a 40-year high and Europe riven by armed conflict. Yet with several nominations stuck in the Senate, the central bank is troublingly under-prepared to rise to the occasion. It’s a weakness that legislators must urgently resolve.
The Biden administration has nominated five candidates to the Fed’s Board of Governors. They include Jerome Powell to continue as chair, Lael Brainard (currently a governor) as vice chair, Lisa Cook and Philip Jefferson as governors, and Sarah Bloom Raskin as vice chair in charge of bank supervision. All are excellent choices, but Republican opposition to Raskin is holding up the whole process.
The delay in the Senate is a problem, because it leaves the policy-making Federal Open Market Committee three voters short of the 12 it is supposed to have (five presidents of regional reserve banks and only four, rather than seven, governors). This, in turn, creates two big challenges.
First, at least four of the nine remaining voters (James Bullard, Esther George, Loretta Mester and Christopher Waller) might advocate more aggressive interest-rate increases in 2022 than Chair Powell would favor – potentially skewing policy away from what a full FOMC would choose, and at the very least complicating the job of communicating the Fed’s response to a complex economic situation.
Second, and more importantly, the FOMC would be dominated by the five regional Fed presidents, who differ from governors in a crucial way: They are appointed not by the elected president of the US, but by the unelected (and typically very wealthy) private citizens who comprise the regional banks’ Class B and C directors. Allowing such an intrinsically unrepresentative body to make a decision of such great public consequence — one that will probably cost people jobs – would be unseemly at best.
The solution is simple: Confirm all the nominees other than Raskin immediately, before the two-day FOMC meeting begins on March 15. Adding Cook and Jefferson to the board will rebalance it toward presidentially appointed governors, giving Powell considerably more heft and likely allowing for much clearer FOMC communication.
I still believe that Raskin’s strong record as both a Fed governor and financial regulator make her a great pick for the job. But right now, the country desperately needs the fullest possible FOMC. If Raskin’s confirmation must wait for further deliberation over the concerns raised by Republicans, so be it.
—Bloomberg