Andy Wong/AP Photo
Sarah Bloom Raskin as U.S. deputy Treasury secretary in October 2014
Sarah Bloom Raskin will replace the anti-regulation Randy Quarles on the Fed’s Board of Governors as vice chair for supervision, as part of a new 4-to-3 progressive majority. The other two excellent nominees are economists Lisa Cook and Philip Jefferson, both African American, creating the most progressive and diverse Federal Reserve ever.
Under Fed Chair Jay Powell and Quarles, the Fed weakened bank capital requirements, gutted the Volcker Rule restricting derivatives trading, and was far too indulgent of bank mergers. All of this can and should be reversed.
In addition, several new areas demand strong regulatory action, including regulation of crypto, non-bank fintech, as well as climate issues, a special favorite of Raskin. The new progressive Fed majority is also in a strong position to challenge the conventional wisdom on inflation and interest rates. As the Prospect’s extensive reporting on the supply chain debacle has demonstrated, most of today’s inflation is the result of supply bottlenecks and opportunistic price increases, not overheated demand.
As a former Fed governor (2010–2014) and deputy Treasury secretary (2014–2016), Raskin knows the regulatory machinery as well as she knows the industry abuses. One possible flashpoint is conflict between this newly progressive majority and the Fed permanent staff, a source of conservative undertow long accustomed to wielding immense power.
Another potential conflict is with Treasury Secretary Janet Yellen, a former Fed chair who has brought with her to Treasury the more pro-banking Fed culture as well as several conservative Fed career officials, such as Nellie Liang, now Treasury undersecretary for domestic finance. In a weird inversion, the traditionally conservative Fed could now be more progressive than a Cabinet department that reports directly to a progressive president.
Raskin will work closely with the one holdover Democrat at the Fed, Lael Brainard, who has often been the lone dissenter on issues of bank mergers and other regulatory issues. With the resignation in disgrace for insider trading of the current general vice chair, Richard Clarida, Biden has elevated Brainard to general vice chair.
All of this raises the intriguing question of what will become of Jay Powell. With his reassurance that inflation could be contained and testimony that there was no reason to rush into a rate hike, Powell managed to sweet-talk Biden into reappointing him. No sooner did he get the job than Powell reverted to inflation hawk.
Normally, the Fed chair wields enormous power, but the Fed operates by consensus. A chair who finds himself on the losing side of votes can’t function. Fed watchers believe that the genial Powell will find ways to compromise and avoid split votes. The last thing he wants is a repeat of the recent episode at the FDIC, where the Democratic majority outvoted the chair, leading to her resignation.
Much of Biden’s legislative program is blocked for now, but his use of the power to appoint and regulate remains formidable.
