© Reuters. FILE PHOTO: Flags fly over the Federal Reserve Headquarters on a windy day in Washington, U.S., May 26, 2017. REUTERS/Kevin Lamarque/File Photo
(Reuters) – U.S. President Joe Biden’s picks to fill seats on the Federal Reserve’s Board of Governors — including two Black economists, Lisa Cook and Philip Jefferson — bring a historic measure of diversity and a potentially dovish tilt on monetary policy to the U.S. central bank’s leadership.
At the same time, the nominations, announced Friday, augur a tighter regulatory hand for Wall Street under Sarah Bloom Raskin, the former Fed governor whom Biden wants to be vice chair of supervision.
The choices, if confirmed by the U.S. Senate, would put a record four women on the seven-member Fed board, who along with the heads of the central bank’s 12 regional banks set interest rates for the world’s biggest economy.
Cook, an economics professor at Michigan State University, would be the Fed’s first Black female governor.
The Fed has had just three Black governors — all men — in its 108-year existence, and never more than one at a time. All current governors, including recently renominated Fed Chair Jerome Powell, are white.
There have also never been more than three female Fed governors at one time, though from April 2011 to May 2012 women constituted a majority of Fed governors because two of the seven Fed board seats were vacant.
“The new nominees have generally expressed dovish policy views,” Goldman Sachs (NYSE:GS) economists said in a note, although they added that, given the current high level of inflation, it’s unlikely they’d fight the Fed’s current policy-tightening path. On regulation, they and others noted, Raskin’s advocacy of using the Fed’s tools to fight climate change could signal a more dramatic shift for the banking world.
Here is a brief look at each of the three nominees:
An economics professor at Michigan State since 2005, Cook has written extensively about racial disparities, documenting the negative impact of anti-Black violence and gender inequality on innovation and economic growth.
She has also lived that experience, while also calling herself a “battle-tested optimist” in a 2020 tweet; born in Midgeville, Georgia, she still has scars from being beaten up when she and her sisters were desegregating schools.
Cook was an adviser on the transition teams for the Biden-Harris and Obama-Biden administrations, and a senior economist for the White House’s Council of Economic Advisers from 2011 to 2012. She has taught at Harvard University and was a research fellow at Stanford University. She earned her Ph.D. in economics from the University of California, Berkeley. Among her teachers: George Akerlof, a Nobel Prize laureate and husband of U.S. Treasury Secretary Janet Yellen.
Cook was nominated to fill a board seat whose 14-year term expires in 2024.
Cook, along with Raskin and Jefferson, “are likely to lean dovish and to support a gradual and cautious approach to normalizing the stance of monetary policy,” JP Morgan economist Michael Feroli wrote. “However, we don’t believe their leanings are so extreme as to derail the likely course of policy.”
Currently vice president for academic affairs and dean of faculty at Davidson College in North Carolina, Jefferson taught economics for more than two decades at Swarthmore College in Pennsylvania, and before that at Columbia University. His first job after graduating from Vassar College in New York state was as a research assistant at the Fed.
In 2005, he wrote a paper arguing that running a “high-pressure” economy with low interest rates boosts the job market. The view is now so orthodox at the U.S. central bank that it is practically enshrined in the recast policy framework it adopted in 2020. At the time, though, it was more controversial, with some making the case that low interest rates could reduce opportunities for workers by promoting investment in automation.
Jefferson has also written extensively on wages, poverty, and income distribution. His seat would expire in 2036.
“Given that COVID impacted the more vulnerable parts of the population, the new Governors could be more focused on ensuring an inclusive labor recovery,” TD Securities economists wrote in a note Friday.
SARAH BLOOM RASKIN
A Harvard-trained lawyer with an undergraduate degree in economics from Amherst College in Massachusetts, Raskin served on the Fed’s board from 2010 to 2014 before becoming the U.S. Treasury’s deputy secretary.
Transcripts of policy-making meetings suggest Raskin leaned dovish on policy. It’s unclear how relevant that view would be to the Fed’s current policy trajectory, given what they now broadly see as alarmingly high inflation that warrants a muscular response.
On supervision, however, Raskin is widely expected to press for stricter scrutiny of banks, drawing a warning from the Senate Banking Committee’s top Republican, Pat Toomey, who suggested she would try to stop banks from lending to oil companies, and praise from his Democratic colleague Elizabeth Warren, who called Raskin a “tough and thoughtful” financial regulator.
The vice chair of supervision term lasts four years; her seat on the board would expire in 2032.