What Biden’s Fed nominations mean for policy

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Now that President Biden’s long-awaited nominations for vacant seats on the Federal Reserve Board of Governors have fallen, the big question is, if confirmed, how Sarah Bloom Ruskin, Lisa Cook and Philip Jefferson will change policy. can.

  • Answer: Don’t expect a major change in central bank policy direction overnight – but do expect it to make a healthy labor market more of a priority in the coming years.
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Why this matters: The Fed’s actions shape the economy in ways that go well beyond the presidents who appoint them – and the Biden-appointed Fed appears to be a more clearly pro-activist central bank than we have seen in modern times.

big picture: With inflation heating up, the Fed is in the midst of a more stringent monetary policy pivot – possibly including raising interest rates in March.

  • Ruskin, Cook and Jefferson are unlikely to stand in the way of that pivot, and not just because the slow-moving Senate confirmation process means it will go well before they are confirmed for their new jobs. Would have been
  • The Fed is a consensus-driven institution, and the consensus has turned in a decisive direction over the past three months. Even normally dovish officials like San Francisco Fed President Mary Daly and Chicago Fed President Charles Evans are on board with the policy change.

but with time, New additions to the board of governors – who have a standing vote on monetary policy, unlike regional Fed chairmen who rotate – have emphasized the importance of running a heated labor market to achieve benefits and greater racial equality for workers.

  • This means the three new governors will oppose the continuation of interest rates at higher levels after the softening of inflation.

What are they saying: “Inflation is so high and the political pressure on the Fed is so strong (including Democrats), that we suspect they will push hard against the will of the Committee,” Roberto Perli and Benson Durham of Cornerstone Macro wrote in client notes.

  • But, he adds, “since all of them have expressed views in favor of a wider expansion of the labor market, … we can expect them to oppose substantial strictures in the future.”
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Regulatory policy is a different matter. If confirmed as vice president for oversight — and Republican senators will try to prevent that from happening — Ruskin will have more clear power over a broader range of regulatory policy, and will be the regulator of his predecessor, Trump-appointed Randall Quarles. Watch to rein in impulses.

Bottom-line: As the Biden Fed takes shape, it will include more voices focused on workers than modern memory. But the course of the policy depends on whether the inflationary trend allows them to act on those trends.

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