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How Biden’s Fed Nominee Could Transform Central Banking To Fit the Left’s Climate Agenda

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• February 28, 2022 5:00 am

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President Joe Biden’s nominee for the nation’s top banking regulator could dramatically change the Federal Reserve’s responsibilities to include harshly punishing any financial institution or company that does business with fossil fuel companies.

Sarah Bloom Raskin, the wife of outspoken climate change hawk Rep. Jamie Raskin (D., Md.), is up for the role of vice chair for supervision at the Fed, a position created in the aftermath of the Great Recession as part of the Dodd-Frank Act. Raskin’s past work indicates she believes fighting climate change should be in the purview of the Fed. Her confirmation would potentially provide opportunities for the Fed to circumvent Congress and force financial institutions to implement sweeping climate change-related reforms. 

For years, the left has increasingly focused on central banks as a tool to implement policies they believe will avert doomsday scenarios brought on by climate change. Sen. Elizabeth Warren (D., Mass.), for example, voted against Jerome Powell’s renomination to lead the central bank after labeling him "dangerous" and criticizing his unwillingness to put more regulations on banks that do business with polluters.

Raskin expressed support for using the financial regulation agency as a tool to fight climate change in a 2020 report she co-authored for the environmentalist think tank Ceres. The report, titled "Addressing Climate as a Systemic Risk: A call to action for U.S. financial regulators," provides more than "50 recommendations for key financial regulators to adopt."

"If we want to create a sustainable climate, we need to transition to a net-zero carbon economy. This transition is not going to happen without guidance," Raskin wrote in the report’s forward. "Financial markets, themselves, are not going to be the first responders to keep us from the threats posed by a climate emergency."

Some political analysts interpreted Raskin's nomination as a way to appease members of the Democratic Party's far-left after Biden's decision to renominate Powell. Warren, for example, has called combating climate change an "obligation of the Fed."

"Raskin troubles me the most of all [Biden’s] picks," said Allison Schrager, an economist and expert on monetary policy. "It’s a big leap to go from financial stability to regulating climate change."

Policies recommended in the Ceres report authored by Raskin include rewarding financial institutions that divest from fossil fuels, and punishing companies deemed to be heavy polluters. Members of the European Central Bank, for example, have called for "reassessing the benchmark allocation of our private asset purchase programmes."

That could mean, according to economist John Cochrane, simply telling "banks to stop lending to the evil fossil fuel companies, and print money and hand it out to worthy green projects." The idea has gained currency among left-wing green energy advocates in the United States, such as proponents of the "Green New Deal."

The Ceres report calls for the Fed to account for "climate exposure" when engaging in asset purchases and criticizes the central bank’s decision to provide loans to oil companies as part of its Main Street Lending Program. In the future, the report argues, emergency support for companies "should be underpinned by conditions relating to improved climate risk management."

In a New York Times op-ed published the same year, Raskin argued that the Fed "should not be directing money to further entrench the carbon economy." Raskin called loans for fossil fuel companies a "risky investment," rather than an emergency measure to stabilize the economy.

That column earned criticism from economists across the political spectrum, with many worried about the public’s perception of the Fed’s independence from political interference. Economist David Beckworth called Raskin’s position "radical," with the potential to "further erode the Fed’s credibility."

"Climate change will create winners and losers already and that’s not something the Fed should be worried about," Beckworth said. "The Fed already does a lot because Congress doesn’t do its job by passing laws, so these things just get shifted to the Fed. We’re asking for trouble if we’re asking the Fed to be a supercharged Fed."

In September 2021, Raskin published a piece in Project Syndicate calling on "financial regulators" to "reimagine their own role so that they can play their part in the broader reimagining of the economy." Implicitly citing the expansion of the Fed’s powers since the 2008 financial crisis, Raskin wrote that the central bank already "has a mandate broad enough" to implement a number of climate change-related policies.

"Accordingly, all U.S. regulators can—and should—be looking at their existing powers and considering how they might be brought to bear on efforts to mitigate risk," Raskin wrote.

Raskin's nomination comes as the Fed faces criticism over its failure to accurately predict the inflation rate. After Powell initially called the current inflationary environment "transitory," a term repeated by the White House for months, markets now expect significant interest rate hikes this year to cool the economy off.

Adding new responsibilities for the Fed, some economists allege, would distract the central bank from its core, legally mandated responsibilities: inflation and employment. The Fed, however, has changed how it perceives itself since the Great Recession, Schrager explained.

"To be a central banker means being far more political nowadays," Schrager said. "Part of Raskin's problem is that she's a lawyer. They all seem to view everything as ‘we can do this,' not ‘whether we should.'"

Raskin would also enter her role during a period of energy uncertainty for U.S. consumers. Gas prices are set to hit highs not seen in years, with the war in Ukraine likely to push them even higher. Further regulation of the oil and gas industry, Raskin's critics say, could hurt consumers further.

A coalition of treasurers, auditors, and financial officers from 21 states signed a letter in January calling for Biden to withdraw Raskin’s nomination, arguing that she is willing to put "the growth and stability of the U.S. economy at risk to achieve her preferred social outcomes." West Virginia treasurer Riley Moore, who cosigned the letter, said Raskin’s beliefs threaten to "destroy the economies of energy-producing states like West Virginia."

Sen. Joe Manchin (D., W.Va.), a lawmaker who could potentially kill Raskin’s nomination if all Republicans vote against her confirmation, said earlier this month that he remains "undecided" on all of Biden’s picks for the Fed. All 12 Republican members of the Senate Banking Committee boycotted a meeting over Raskin’s nomination, alleging that she failed to provide sufficient answers about her work in the private sector.