Fed Needs To Stop Straying Outside Its Mandate, Chairman Is Told

Senator Toomey said he is troubled by the trend of using financial regulators to tackle complex political issues such as racial justice, education, and climate change.

Senator Toomey during a Senate Banking Committee hearing March 3, 2022. Tom Williams, pool via AP

Republicans on the Senate Banking Committee are underlining their opposition to one of President Biden’s nominees to the Federal Reserve’s board and decrying what they say is the increasing politicization of the central bank.

The ranking Republican on the committee, Senator Toomey, said during Thursday’s appearance by the Fed chairman, Jerome Powell, that he is troubled by the trend of using financial regulators, including the Fed, to tackle complex political issues such as racial justice, education, and climate change.

“No doubt, these are important issues,” Mr. Toomey, who is retiring later this year at the end of his term, said. “But, they’re wholly unrelated to the Fed’s limited statutory mandates and expertise. And yet the Fed has been weighing in on every one of these issues.”

Republicans on the committee have been blocking a slate of five nominations to the Fed’s board of governors, including that of Mr. Powell, because of Mr. Biden’s nomination of a former Fed governor and deputy treasury secretary during the Obama administration, Sarah Bloom Raskin, to be vice chairwoman of supervision on the board.

The role, created after the financial crisis of 2008, would put the nation’s largest banks under her watch.

An area of Ms. Bloom Raskin’s academic focus — she was a professor at Duke University until recently — has been on the impact of climate change on financial systems and the steps regulators should take to mitigate those risks. 

Speaking at a forum at the University of California, Berkeley, last year, she said the Fed should take a more active role in efforts to combat climate change. The country needs financial regulators “to transition to a net-zero economy in the most stable, least dangerous way possible,” she told the forum.

It is that sort of language — suggesting that the Fed use its regulatory cudgel to, for example, force banks to steer clear of companies in the fossil fuels sector — that has rankled Republicans on the banking committee.

Senator Scott of South Carolina told Mr. Powell that he shares the concern of his fellow Republicans about keeping the Federal Reserve on mission.

“Looking at nominees like Ms. Rakin’s approach and public statements as it relates to environmental responsibilities the Fed should take on, I am completely, unequivocally opposed to that direction,” Mr. Scott told the committee.

During the hearing, Mr. Toomey also criticized mission creep at the regional federal reserve banks, which have hosted “Racism in the economy” series featuring speakers advocating for racial reparations and defunding the police. He singled out the Minneapolis branch for what he said was actively lobbying to change Minnesota’s constitution on the issue of K-12 education policy.

“Does anyone truly think these activities are within the Fed’s statutory mandates?,” Mr. Toomey asked. “Of course not.”

In response, Mr. Powell said the regional banks enjoy a degree of freedom from oversight from the board of the central bank, which he described as “a feature, not a bug” of the system.

“It avoids the kind of groupthink you get if you have one economics staff in one building,” Mr. Powell said.

However, he added, “I strongly share the view that everything we do in the system needs to be clearly linked, in ways that people understand, to our mandate, and that that is one of the most important underpinnings of our independence.”

Senator Warren of Massachusetts used her time at the microphone to criticize Republicans for stonewalling the nomination of Ms. Bloom Raskin and the other governors, all four of whom the Republicans have said they will support. 

“Republicans on this committee refuse to show up and vote on five nominees to the Fed. They refuse to do their job,” Ms. Warren said. “This is shameful, and it is risky. Any Republican talking today about the risks facing our economy should be willing to show up and vote on Fed nominees.”

Republicans on the committee also have expressed concern about Ms. Bloom Raskin’s possible use of her central bank connections to secure access to a Fed account for a financial technology company, Reserve Trust, on whose board she sat after she left the Treasury Department.

Republicans have said they will continue blocking her nomination until she answers more questions about her efforts on behalf of the company.

A spokeswoman for the committee said the chairman, Senator Brown of Ohio, is working to schedule another vote on the nominations. On the floor of the Senate this week, Mr. Brown chided his fellow senators for their intransigence.

“This is not the moment for political stunts,” Mr. Brown said.

The New York Sun

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