Addressing climate risk within Fed’s role, Raskin tells senators

Sarah Bloom Raskin has strongly reaffirmed her commitment to act within the Federal Reserve’s mandate if confirmed as vice chair for supervision, amid Republican attacks over the comments she has made on climate-related financial risks.

Raskin defended the role of the Fed in addressing climate risks within its mandate, saying regulators must stay attentive to risks no matter where they come from, including from nature and cataclysmic weather-related events.

She was speaking during a confirmation hearing with the Senate banking committee, alongside Lisa Cook and Phillip Jefferson, President Biden’s other nominees for the Fed board.

Senator Pat Toomey led the criticism of Raskin, suggesting that she has supported using the Fed’s power to direct money away from the fossil fuel industry. He said the nomination of Raskin and Cook amounted to a referendum on the Fed’s independence.

Raskin repeatedly asserted that she believes it is inappropriate for the Fed to choose winners and losers, and that it should not be involved in credit allocation.

“Supervisory and regulatory actions must always stay within the bounds of the law,” she said. “I understand Congress’s strictures and authorities and have always acted within them.”

Raskin was defended by the committee chair, Democrat Sherrod Brown, who urged his Republican colleagues to examine her record as a Fed governor, a position which she held for four years during the Obama administration.

“As a governor, she never advocated for the Fed to allocate private capital,” he added. “If that’s not evidence and proof, what could be?”

A focus for Republican criticism of Raskin was a New York Times article in which she challenged the Fed’s decision to buy up bad debt from fossil fuel companies as part of its bid to backstop firms which were at risk of failure due to Covid-19.

Raskin restated her view that the Fed should not be seeking to advantage particular sectors, saying her article was about decisions the Fed had made about emergency lending programs, not as part of the supervisory process.

Max Moran, a researcher at the Revolving Door Project, wrote in a recent article that Raskin was actually critiquing a situation where the Fed was inappropriately supporting certain companies. He said Raskin was questioning why the Fed went out of its way to bring in firms that were contrary to the programme’s intent and delivered a poor return on its investment.

Senator Elizabeth Warren highlighted the extent to which all three nominees’ positions on climate risks are in line with those of chair Jerome Powell, who enjoys widespread support among the Republicans on the committee. For example, when asked by Warren, all three nominees agreed with Powell that climate stress scenarios would be a key tool for the Fed going forward.

“Asking the Fed to ignore climate risks is to ask the Fed to defy its congressional mandate. An institution responsible for the security of our financial system and the growth of our economy cannot blind itself to climate issues,” said Warren.

Senator Moran, a Republican from Kansas, sought reassurance from Raskin that there was no way in which the Fed’s powers could be deployed to shrink the fossil fuel industry. Raskin said she had no such aspiration, and that the Fed did not have the necessary powers to deliver such an outcome, even if board members wanted it to.

Although the questions related to the Fed’s role in addressing climate risk were largely directed at Raskin, Lisa Cook also came under attack over what Republican senators described as a lack of relevant experience in monetary policy.

Dr Cook, who served on the White House Council of Economic Advisers under President Obama, said “I certainly am proud of my academic background. I know I have been the target of anonymous and untrue attacks on my academic record.”

Sherrod Brown said that the three nominees – alongside Jerome Powell and Lael Brainard, who Biden has also nominated for Fed chair and vice chair respectively – will face a committee vote on 15 February. A vote on the nominations from the Senate as a whole is expected to follow soon after.