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Investors Are Calling It: The Federal Reserve May Be Done Raising Rates

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Investors doubt that central bankers will lift borrowing costs again following big market moves that are widely expected to cool growth.Investors are betting that the Federal Reserve, which has raised interest rates to their highest levels in 22 years, may finally be finished.Several top Fed officials have indicated in recent days that the central bank’s effort to cool the economy through higher borrowing costs is being amplified by recent market moves that are essentially doing some of that job for them.In particular, attention has focused on a run-up in interest rates on U.S. government debt, with the yield on the 10-year Treasury bond briefly touching a two-decade high last week. That yield is incredibly important because it acts as the market’s foundation, underpinning interest rates on many other types of borrowing, from mortgages to corporate debt, and influencing the value of companies in the stock market.Philip N. Jefferson, the vice chair of the Fed, said this week that although “it may be too soon to say confidently that we’ve tightened enough,” higher market rates can reduce how much businesses and households spend while depressing stock prices. He added that the Fed wanted to avoid doing too much and hurting the economy unnecessarily.Given that, he said the Fed “will be taking financial market developments into account along with the totality of incoming data in assessing the economic outlook.”Investors have sharply reduced expectations of another rate increase before the end of the year. They see about a one-in-four chance that policymakers could lift rates again.“If financial conditions are tightening independent of expectations for monetary policy” then “that will reduce economic activity,” said Michael Feroli, the chief U.S. economist at J.P. Morgan. “Things change, you change your forecast.”Investors have expected the Fed to stop raising interest rates before and been proven wrong. There is still a chance now that the market dynamics that are helping to raise borrowing costs could reverse, and this week, some of the recent pop in the yield on 10-year bonds has eased. But if market rates stay high, it could keep adding to the substantial increase in borrowing costs the Fed had already ushered in for consumers and companies.Philip Jefferson, the vice chair of the Federal Reserve, said that “it may be too soon to say confidently that we’ve tightened enough to return inflation.”Ann Saphir/ReutersThe Fed has raised its key interest rate from near zero to above 5.25 percent over the past 19 months in an attempt to tame inflation. But the Fed directly controls only very short-term rates. It can take a while for its moves to trickle through the economy to affect longer-term borrowing costs — the kind that influence mortgages, business loans and other areas of credit.There are likely several reasons those longer term rates in markets have climbed sharply over the past two months. Wall Street may be coming around to the possibility that the Fed will leave borrowing costs set to high levels for a long time, economic growth has been strong, and some investors may be concerned about the size of the nation’s debt.Over time, the rise in yields on Treasury bonds is likely to weigh on the economy, and Fed officials have been clear that it could do some of the work of further raising interest rates for them.Officials had forecast in September that they might need to make one more rate move this year. But comments by Mr. Jefferson, along with some of the Fed’s more inflation-focused members have been widely seen as a signal that the Fed is likely to be more cautious.Christopher J. Waller, a Fed governor who has often favored higher rates, said at an event on Wednesday that officials were in a position to “watch and see” what happens, and would keep a “very close eye” on the move and “how these higher rates feed into what we’re going to do with policy in the coming months.”Lorie K. Logan, president of the Federal Reserve Bank of Dallas, said on Monday that higher market yields “could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening.”But she noted that it would depend on why rates were rising. If they had climbed because investors wanted to be paid more to shoulder the risk of holding long-term bonds, the change was likely to squeeze the economy. If they had climbed because investors believed the economy was capable of growing more strongly even with high rates, it would be a different story.The yield on 10-year Treasury bonds soared to its peak this month, a sharp move that has subsequently jolted mortgage rates.Caitlin O’Hara for The New York TimesEven Michelle W. Bowman, a Fed governor who tends to favor higher rates, has softened her stance. Ms. Bowman said on Oct. 2 that further adjustment would “likely be appropriate.” But in a speech she delivered on Wednesday, that wording was less definitive: She said policy rates “may need to rise further.”The softer tone among Fed officials appears to have helped halt the rise in market rates, with the yield on the 10-year Treasury bond easing 0.2 percentage points so far this week. On Tuesday, the yield fell by the most in a day since the turmoil induced by the banking crisis in March. That likely reflected investors who rushed to the safety of U.S. government debt as war broke out in Israel and Gaza. Still, the yield remains around 4.6 percent, roughly 0.8 percentage points higher than at the start of July.“It seems like there is a little skittishness,” said Subadra Rajappa, head of U.S. rates strategy at Société Générale.Higher interest rates also typically weigh on stock prices, with major indexes under pressure over the summer alongside the rise in yields. The S&P 500 suffered its worst month of the year through September but has risen 2 percent so far this month, alongside retracing yields.Policymakers will get another read on the effect of rate rises with the release of the Consumer Price Index on Thursday. Economists expect the data to show a gradual slowdown in inflation is continuing, despite the unexpected resilience of the economy.That could change, however, especially if yields continue to fall, relieving some of the pressure on the economy.A robust economy could keep the possibility of another Fed rate move alive, even if investors see it as unlikely. Ms. Logan warned that policymakers should avoid overreacting to market moves if they quickly fade.And Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said on Tuesday that long-term rates might have moved up in part because investors expected the Fed to do more. Therefore, if the Fed signals that it will be less aggressive, they could retreat.“It’s hard for me to say definitively — hey, because they have moved, therefore we don’t have to move,” Mr. Kashkari said. “I don’t know yet.” More

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    U.S. Economy’s Staying Power Poses Big Questions for the Fed

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    The Federal Reserve has been trying to slow growth without tanking it. Now, officials must ask if inflation can cool amid signs of resilience.Employers are hiring rapidly. Home prices are rising nationally after months of decline. Consumer spending climbed more than expected in a recent data release.America’s economy is not experiencing the drastic slowdown that many analysts had expected in light of the Federal Reserve’s 15-month, often aggressive campaign to hit the brakes on growth and bring rapid inflation under control. And that surprising resilience could be either good or bad news.The economy’s staying power could mean that the Fed will be able to wrangle inflation gently, slowing down price increases without tipping America into any sort of recession. But if companies can continue raising their prices without losing customers amid solid demand, it could keep inflation too hot — forcing consumers to pay more for hotels, food and child care and forcing the Fed to do even more to restrain growth.Policymakers may need time to figure out which scenario is more likely, so that they can avoid either overreacting and causing unnecessary economic pain or underreacting and allowing rapid inflation to become permanent.Given that, investors have been betting that Fed officials will skip a rate increase at their meeting on Tuesday and Wednesday before lifting them again in July, proceeding cautiously while emphasizing that pausing does not mean quitting — and that they remain determined to bring prices under control. But even that expectation is increasingly shaky: Markets have spent this week nudging up the probability that the Fed might raise rates at this month’s meeting.In short, the mixed economic signals could make Fed policy discussions fraught in the months ahead. Here’s where things stand.Interest rates are much higher.Interest rates are above 5 percent, their highest level since 2007.

    Source: Federal ReserveBy The New York TimesAfter sharply adjusting policy over the past 15 months, key officials including Jerome H. Powell, the Fed chair, and Philip Jefferson, President Biden’s pick to be the next Fed vice chair, have hinted that central bankers could pause to allow themselves time to judge how the increases are affecting the economy.But that assessment remains a complex one. Even some parts of the economy that typically slow when the Fed raises rates are demonstrating a surprising ability to withstand today’s interest rates.“It’s a very complicated, convoluted picture depending on which data points you are looking at,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank, noting that overall growth figures like gross domestic product have slowed — but other key numbers are holding up.House prices are wiggling.Higher interest rates can take months or even years to have their full effect, but they should theoretically work pretty quickly to begin to slow down the car and housing markets, both of which revolve around big purchases made with borrowed cash.That story has been complicated this time. Car buying has slowed since the Fed started raising rates, but the auto market has been so undersupplied in recent years — thanks in large part to pandemic-tied supply chain problems — that the cool-down has been a bumpy one. Housing has also perplexed some economists.

    Note: Data is seasonally adjusted.Source: S&P CoreLogic Case-Shiller Index, via
    S&P Global IntelligenceBy The New York TimesThe housing market weakened markedly last year as mortgage rates soared. But rates have recently stabilized, and home prices have ticked back up amid low inventory. House prices do not count directly in inflation, but their turnaround is a sign that it’s taking a lot to sustainably cool a hot economy.Job signals are confusing.Fed officials are also watching for signs that their rate increases are trickling through the economy to slow the job market: As it costs more to fund expansions and as consumer demand slows, companies should pull back on hiring. Amid less competition for workers, wage growth should moderate and unemployment should rise.Some signs suggest that the chain reaction has begun. Initial claims for unemployment insurance jumped to the highest level since October 2021 last week, a report on Thursday showed. People are also working fewer hours per week at private employers, which suggests bosses aren’t trying to eke so much out of existing staff.

    Notes: Data is seasonally adjusted and includes hours worked by full- and part-time private sector employees.Source: Bureau of Labor StatisticsBy The New York TimesBut other signals have been more halting. Job openings had come down, but edged back up in April. Wages have been climbing less swiftly for lower-income workers, but gains remain abnormally rapid. The jobless rate climbed to 3.7 percent in May from 3.4 percent, but even that was still well shy of the 4.5 percent that Fed officials expected it to hit by the end of 2023 in their latest economic forecasts. Officials will release fresh projections next week.

    Source: Bureau of Labor StatisticsBy The New York TimesAnd by some measures, the labor market is still chugging. Hiring remains particularly strong.“Everyone talks as if the economy moves in one straight line,” said Nela Richardson, chief economist at ADP. “In actuality, it’s lumpy.”Price increases are stubborn.Still, inflation itself may be the biggest wild card that could shape the Fed’s plans this month and over this summer. Officials forecast in March that annual inflation as measured by the Personal Consumption Expenditures index would retreat to 3.3 percent by the end of the year.That pullback is gradually happening. Inflation stood at 4.4 percent as of April, down from 7 percent last summer but still more than double the Fed’s 2 percent goal.

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    Year-over-year percentage change in the Personal Consumption Expenditures index
    Source: Bureau of Economic AnalysisBy The New York TimesOfficials will receive a related and more up-to-date inflation reading for May — the Consumer Price Index — on the first day of their meeting next week.Economists expect substantial cooling, which could give officials confidence in pausing rates. But if those forecasts are foiled, it could make for an even more heated debate about what comes next. More

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    Biden Taps Philip Jefferson and Adriana Kugler for Top Fed Jobs

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    President Biden announced his plan to nominate Adriana Kugler, an official at the World Bank, for a Fed governor job, while elevating Philip Jefferson to the role of vice chair.WASHINGTON — President Biden on Friday said he would nominate Adriana Kugler for a seat on the Federal Reserve Board and would elevate Philip Jefferson, a current governor, as vice chair of the central bank.If they are confirmed by the Senate, the Fed would get its first Latina board member and its second Black vice chair, a move that could both make the Fed more diverse and build out its leadership team at a challenging economic moment.Mr. Biden chose Ms. Kugler, an economist with a background in labor economics who has Colombian heritage and is the U.S. executive director of the World Bank, to fill the Fed’s only remaining open governor position on its seven-member board. In a corresponding move, he elevated Mr. Jefferson, an economist who was confirmed overwhelmingly to the board when Mr. Biden nominated him to an open governor position, to be the Fed’s vice chair.The New York Times previously reported on the expected nominations.Lael Brainard, who became head of Mr. Biden’s White House National Economic Council earlier this year, was the vice chair of the Fed until February.Because the Fed’s vice chair comes from among its seven governors, Ms. Brainard’s resignation left both a governor seat open and the vice chair role vacant. Ms. Kugler will take the open spot on the board, while Mr. Jefferson, who is already a Fed governor, will be elevated to the leadership position.The Biden administration needed to balance a complicated set of priorities as it filled those open spots at the Fed, the world’s most powerful central bank. The administration is under pressure, especially from Senator Bob Menendez, Democrat of New Jersey, to appoint a Latino or Latina to the Fed Board. And the Fed itself is at an unusually challenging juncture: It is trying to wrestle rapid inflation lower with the most aggressive policy campaign since the 1980s, one that could come at a significant cost the job market.Mr. Biden also announced that he would nominate Lisa Cook, a sitting Fed governor whose term will expire early next year, to another full 14-year term as a member of the board.“These nominees understand that this job is not a partisan one, but one that plays a critical role in pursuing maximum employment, maintaining price stability and supervising many of our nation’s financial institutions,” Mr. Biden said in statement announcing the picks.A Latino person has never served on the Fed board in the central bank’s more than 109-year history, so Ms. Kugler’s nomination would be a first if it ended in confirmation. It would also add an official with considerable experience in labor economics: Ms. Kugler, who was formerly an economist and administrator at Georgetown University, served as chief economist of the Labor Department during the Obama administration from 2011 to 2013.She has worked in the economics departments at the University of Houston and at University Pompeu Fabra in Barcelona, and she has a doctorate from the University of California, Berkeley.Mr. Menendez praised the decision in a statement on Friday, and made clear that he will support the nominees.“I for one will make it my personal mission to help ensure swift confirmations for Jefferson, Cook and Kugler,” he said.Mr. Jefferson, who took office at the Fed last May, is an economist who most recently served as an administrator at Davidson College and has a doctorate in economics from the University of Virginia. During his tenure at the Fed, he has built a reputation as an inquisitive listener with an interest in staff economic research.Mr. Jefferson was born in Washington D.C., in a neighborhood called Kingman Park. During his confirmation hearing to be a Fed governor, he recalled that in his youth, “it was a place where the line between a future of success or struggle was thin.”If confirmed, he would be the second Black person to reach such an elevated position at the Fed, following Roger W. Ferguson Jr., an economist and business executive. More

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    White House Considers Two Key Nominations at the Fed

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    Administration officials are considering Adriana Kugler, an official at the World Bank, for a Fed governor job, while elevating a sitting governor to the role of vice chair.WASHINGTON — President Biden is closing in on two nominations for the Federal Reserve’s Board of Governors that would give the Fed its first Latina board member and its second ever Black vice chair, according to several people familiar with the process.Mr. Biden is close to nominating Adriana Kugler, an economist with Colombian heritage who is the U.S. executive director of the World Bank, to the Fed’s only remaining open governor position. In a corresponding move, he is likely to elevate Philip Jefferson, an economist who was confirmed overwhelmingly to the board when Mr. Biden nominated him to an open governor position, to be the board’s vice chair.The decisions are not yet final.A White House spokesman declined to comment on Monday. The Federal Reserve did not comment.If she is both nominated and confirmed by the Senate, Ms. Kugler would fill a governor position recently vacated by Lael Brainard, who became director of the White House National Economic Council in February.The Fed board is made up of seven members, with one serving as chair, another as vice chair and another as vice chair for bank supervision. Ms. Brainard was both a governor and the Fed’s vice chair.The leadership shuffle at the Fed — the world’s most powerful central bank and a key economic policy setter in America — would reflect the complicated set of priorities that the Biden administration is trying to balance. The administration is under pressure, especially from Senator Bob Menendez of New Jersey, to appoint a Latino or Latina to the Fed Board.Ms. Kugler, who was formerly both an economist and administrator at Georgetown University, was not on the list of potential candidates that Mr. Menendez, a Democrat, put forth. But a spokesperson for Mr. Menendez said, without commenting on specific candidates, that the senator’s priority was elevating a qualified Latino or Latina to the Fed Board — whomever that person might be.A Latino person has never served on the Fed Board of Governors in the central bank’s more than 109-year history, so Ms. Kugler’s nomination would be a historical first if it ended in a successful confirmation.The Fed is also approaching a challenging policy juncture as it slows the economy to contain inflation. The vice chair at the central bank traditionally plays a key role both in communicating what the Fed is doing and in helping the chair, in this case Jerome H. Powell, to rally a policy consensus. That could call for someone with experience at the central bank. The job is likely to be a difficult one as the Fed slows the economy, weakens the job market and draws ire from both progressive Democrats and — if history is any guide — potentially the broader public.Mr. Jefferson, who took office at the Fed last May, is an economist who most recently served as an administrator at Davidson College and who has a doctorate in economics from the University of Virginia. During his tenure at the Fed, he has built up a reputation for being an inquisitive listener with an interest in staff economic research, according to a person familiar with his time there.Ms. Kugler would bring with her extensive knowledge of the labor market. She was formerly chief economist of the Labor Department during the Obama administration, serving in that job from 2011 to 2013. She has worked in the economics departments at the University of Houston and at University Pompeu Fabra in Barcelona, and she has a doctorate from the University of California, Berkeley.Another open job within the Fed’s leadership ranks could also be filled soon: The president of the Federal Reserve Bank of Kansas City.While the White House nominates leaders to the Fed’s public Board of Governors, the central bank’s 12 regional reserve banks across the country are semiprivate, and their leaders are selected by community members and business leaders on their boards.Phillip Swagel, the director of the Congressional Budget Office, is on the list of potential candidates for that position, according to a person familiar with the matter. The Congressional Budget Office did not comment on Mr. Swagel’s candidacy, nor did the Kansas City Fed.If he is picked and approved by the Fed’s Board of Governors, Mr. Swagel would vote on monetary policy in 2025. While governors at the Fed and the head of the New York branch hold constant votes on monetary policy, other regional bank presidents rotate in and out of voting seats.The Fed meets this week to decide on whether to raise interest rates at a moment when the banking system is experiencing tumult — the government announced that First Republic was being acquired by J.P. Morgan in the early hours of Monday — but inflation is also proving stubborn.Central bankers are expected to raise rates by a quarter point, but then to leave them unchanged at just above 5 percent in the coming months as the economy slows and unemployment rises.The economic moment makes the Fed nominations unusually high stakes: Whoever fills the open positions at the Fed could provide an important voice at the table as officials debate how to strike the delicate balance between controlling inflation and harming the labor market.While economists broadly agree that some economic pain may be necessary to get price increases back under control, how much — and how rapidly inflation must be wrestled back — will require difficult choices.“The challenges that this Fed faces are so different than at any point in the last 40 years,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “How do they safety land this economy into an equilibrium where inflation is not sticky, and where we’re not creating too much unemployment?” More

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    Senate Confirms Philip Jefferson as a Fed Governor

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    Philip N. Jefferson, a college administrator and academic economist, was confirmed to the Federal Reserve’s Board of Governors on Wednesday.Senators approved him for the job in an overwhelming bipartisan 91-7 vote. He is the third of President Biden’s nominees to secure a spot on the Fed’s seven-person board: Lisa D. Cook was confirmed as a governor on Tuesday, and Lael Brainard was confirmed as vice chair last month.Mr. Jefferson, who was most recently vice president for academic affairs at Davidson College, was born in Washington, D.C., and holds a Ph.D. in economics from the University of Virginia. He has been an economist at the Fed board, and has written about poverty and monetary policy’s effect on the labor market, among other topics.The White House has also renominated Jerome H. Powell as Fed chair, though Mr. Powell is still awaiting a final confirmation vote. Senators said that vote was expected as soon as Thursday.The administration’s nominee for the final open Fed job — the vice chair for supervision — has yet to have a committee hearing and vote. Mr. Biden’s initial nominee for the position, Sarah Bloom Raskin, withdrew from consideration after it became clear that she would not pass the Senate. Michael S. Barr was put up for the job more recently.If those picks are confirmed, Mr. Biden will have nominated or renominated five of the Fed’s seven governors. The Fed is independent of politics, so those appointments are the main way that the White House can shape the future of monetary policy, which is used to keep inflation stable and employment high.Governors at the Fed’s board in Washington hold constant votes on monetary policy and oversee the nation’s largest banks. They set interest rates to guide the economy alongside 12 regional reserve bank presidents, five of whom hold a vote on monetary policy at any given time.Mr. Jefferson and Ms. Cook are likely to support the Fed’s current project: reining in rapid inflation. Consumer prices climbed 8.3 percent in the year through April, data released Wednesday showed, an uncomfortably rapid pace of increase. Fed officials are raising rates at the fastest pace in decades as they try to tamp down price pressures and bring the situation under control.“The spike in inflation we are seeing today threatens to heighten expectations of future inflation,” Mr. Jefferson said during his confirmation hearing. “The Federal Reserve must remain attentive to this risk and ensure that inflation declines to levels consistent with its goals.” More

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    Senate Confirms Biden Fed Nominee, Lael Brainard, as Vice Chair

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    The Senate voted to confirm one of President Biden’s nominees to the Federal Reserve’s Board of Governors, making Lael Brainard the central bank’s vice chair.Ms. Brainard, a Fed governor since 2014 who was originally nominated to the institution by President Barack Obama, was a key architect of the central bank’s response in 2020 as state and local lockdowns tied to the pandemic roiled markets and sent unemployment rocketing higher. She has been a close adviser to Jerome H. Powell, the Fed chair.Ms. Brainard received some bipartisan support, and passed the Senate in a 52-to-43 vote.The White House has also nominated Mr. Powell to another four-year term as chair. Mr. Powell, who was first appointed to the Fed by Mr. Obama, became chair in 2018 during the Trump administration. Mr. Biden has also nominated the economists Philip N. Jefferson and Lisa D. Cook to fill two open governor positions.Votes on those three nominees are expected soon.If all are confirmed, the four officials will make up a majority of the Fed’s seven-person Board of Governors in Washington, giving Mr. Biden a chance to leave his mark on the institution. Fed governors hold a constant vote on monetary policy, which they set alongside the central bank’s 12 regional reserve bank presidents, who vote on a rotating basis.But even as it gains new faces, the Fed is likely to stick to the course it has already begun to chart as it battles stubbornly rapid inflation. The central bank raised interest rates at its meeting in March and is expected to make an even bigger rate increase at its meeting next Tuesday and Wednesday. Policymakers have also signaled that they will soon begin to shrink their balance sheet of bond holdings in a bid to push up longer-term interest rates and further slow the economy.By making money more expensive to borrow, the Fed can slow down spending, which could allow inflation to moderate over time as supply catches up with demand. During their hearings, the nominees made it clear that they were committed to bringing down high inflation. Ms. Brainard and Mr. Powell regularly address that goal in public remarks.The central bank is hoping that it can calm the economy without pushing the unemployment rate higher and sending it into a recession.“I don’t think you’ll hear anyone at the Fed say that that’s going to be straightforward or easy,” Mr. Powell said at an event on Thursday. “It’s going to be very challenging. We’re going to do our very best to accomplish that.”The Senate has yet to start the process for voting on Mr. Biden’s fifth and most recent pick for the Fed Board: The White House this month nominated Michael S. Barr as the Fed’s vice chair for supervision. The White House’s initial nominee, Sarah Bloom Raskin, failed to secure enough support and was withdrawn from consideration for the job.Mr. Barr must appear before and then pass the Senate Banking Committee before advancing to a confirmation vote in the full Senate. More

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    Senate Republicans Stall Crucial Vote on Fed Nominees

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    President Biden’s plans to reshape the Federal Reserve suffered a setback on Tuesday as Republicans delayed a key vote on his five nominees for its Board of Governors.Republicans did not show up for a committee decision that would have advanced the nominees to the full Senate for a confirmation vote. Because a majority of the Senate Banking Committee’s members need to be physically present for such votes to count, their blockade effectively halted the process.The unusual maneuver, spearheaded by Senator Patrick J. Toomey of Pennsylvania, was driven by Republican opposition to Mr. Biden’s pick for the nation’s top bank cop, Sarah Bloom Raskin.The president has renominated Jerome H. Powell as Fed chair and has tapped Lael Brainard, a current Fed governor, as vice chair. He has also nominated the economists Lisa D. Cook and Philip N. Jefferson as Fed governors. But Ms. Raskin — a longtime Washington policymaker and lawyer whom Mr. Biden has picked as vice chair for bank supervision — has garnered the most pushback.To prevent her nomination from advancing to the full Senate, Republicans held up the vote on all five nominees.Democrats and the White House criticized Republicans for engineering a boycott and scrambled for a solution that could get the nominees to a confirmation vote. Senator Sherrod Brown, Democrat of Ohio and chair of the Banking Committee, on Tuesday shot down the idea that he would separate Ms. Raskin from the other nominees to allow the rest to advance. Ms. Raskin could face tough odds of passing, especially on her own.By nominating five of the Fed’s seven governors and all of its highest-ranking leaders, Mr. Biden had a chance to shake up the institution. While some of his picks — like Mr. Powell — represented continuity, together they would have made up the most racially and gender-diverse Fed leadership team ever.Sarah Binder, a professor of political science at George Washington University who co-wrote a book on the politics of the Fed, said Democrats would need to come up with a strategy to overcome the Republican block or the nominees could get stuck in limbo.“It is really a delay — it might yet scupper Raskin,” she said. She noted that Democrats could break the nominations up or try to garner enough support among the full Senate to override the rules and get the nominees past the committee, though that might be a challenge.“It’s pretty uncharted, and they’re going to have to find a way,” Dr. Binder said.Molly Reynolds, a senior fellow in governance studies at the Brookings Institution, said that outside of trying to change Senate rules — which she called the “nuclear option” — Democrats’ clearest avenue was probably to negotiate with Republicans.“They just need a Republican to show up,” she noted, explaining that the senator would not even need to vote yes for the committee to secure a majority and move the candidates along.Tuesday’s maneuver was the latest step in Mr. Toomey’s opposition campaign against Ms. Raskin, who would serve as arguably the nation’s most important bank regulator if confirmed.Mr. Toomey has criticized Ms. Raskin for past comments on climate-related regulation, worrying that she would be too activist in bank oversight. More recently, he has pressed for more information about her interactions with the Fed while she was on the board of a financial technology company that was pushing for a potentially lucrative central bank account.“Until basic questions have been adequately addressed, I do not think the committee should proceed with a vote on Ms. Raskin,” Mr. Toomey said in the statement.White House officials criticized his move as inappropriate when the Fed is wrestling with rapidly rising prices and preparing to raise interest rates next month.“It’s totally irresponsible, in our view — it’s never been more important to have confirmed leadership at the Fed,” said Jen Psaki, the White House press secretary. She added that the administration’s focus now was moving the nominees through the committee and called Mr. Toomey’s probing of Ms. Raskin’s background “false allegations.”The dispute centers on the revolving door between government regulators and the arcane world of financial technology.Mr. Toomey and his colleagues have said Ms. Raskin, a former Fed and Treasury official, had contacted the Federal Reserve Bank of Kansas City on behalf of Reserve Trust, a financial technology company. Reserve Trust secured a strategically important account at the Fed while she was on its board: To this day, it advertises that it is the only company of its kind with what’s known as a “master” account.Master accounts give companies access to the U.S. payment system infrastructure, allowing firms to move money without working with a bank, among other advantages.Republicans are blocking the process over concerns about one of the nominees, Sarah Bloom Raskin.Pool photo by Ken CedenoMs. Raskin said in written responses to Mr. Toomey’s questions early this month that she did “not recall any communications I made to help Reserve Trust obtain a master account.” But Mr. Toomey said in a subsequent letter that the president of the Kansas City Fed, Esther George, had told his staff that Ms. Raskin called her about the account in 2017.The Kansas City Fed has insisted that it followed its normal protocol in granting Reserve Trust’s master account and noted that talking with a firm’s board members was “routine.” But Mr. Toomey has continued to push for more information.“Important questions about Ms. Raskin’s use of the ‘revolving door’ remain unanswered largely because of her repeated disingenuousness with the committee,” Mr. Toomey said in his statement Tuesday.Democrats have emphasized that Ms. Raskin recently committed to a new set of ethics standards, agreeing not to work for financial services companies for four years after she leaves government — a pledge Ms. Cook and Mr. Jefferson also made, at the urging of Senator Elizabeth Warren, Democrat of Massachusetts.Ms. Brainard agreed to a weaker version of that commitment that would bar her from working at bank holding companies and depository institutions outside of mission-driven exceptions like banks that target underserved communities, a spokesperson for Ms. Warren’s office said Tuesday.Mr. Powell declined to make a similar commitment, the spokesperson said. The Fed chair did signal that he would adhere to the administration’s ethics rules, which ban paid work related to government service for two years upon leaving office.On Tuesday, a dozen Republican chairs in the room where the committee met remained empty while Democrats occupied their seats across the room. Democrats took a vote to show support, though it was not binding, and Mr. Brown pledged to reschedule.“Few things we do as senators will do more to help address our country’s economic concerns more than to confirm this slate of nominees, the most diverse and most qualified slate of Fed nominees ever put forward,” Mr. Brown said, chiding Republicans for skipping the session.“They’re taking away probably the most important tool we have — and that’s the Federal Reserve — to combat inflation,” he later added.The Fed has four current governors, in addition to its 12 regional presidents, five of whom vote on monetary policy at any given time. Mr. Powell has already been serving as chair on an interim basis, since his leadership term officially expired this month. Even if the nominees advance, Ms. Raskin may struggle to pass the full Senate. Winning confirmation would require her to maintain full support from all 50 lawmakers who caucus with Democrats and for all those lawmakers to be present unless she can win Republican votes. Senator Ben Ray Luján, Democrat of New Mexico, has been absent as he recovers from a stroke.“The Republicans are playing hardball because they can,” said Ian Katz, the managing director at Capital Alpha Partners. “At the least, it delays her confirmation. It could have the ultimate effect of killing it.” More

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    Fed nominees commit to not taking part in finance’s revolving door.

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    Three of President Biden’s nominees to the Federal Reserve committed to lawmakers that, if confirmed to their posts, they would not work in financial services for four years after leaving the Fed.The pledge comes amid growing concern about the revolving door between Washington and Wall Street.The three potential Fed governors in question — the economists Lisa D. Cook and Philip N. Jefferson and a longtime government official and lawyer, Sarah Bloom Raskin — said they would “commit not to seek employment or compensation” from any financial services company after leaving the board, which oversees the largest banks.Their promises came at the urging of Senator Elizabeth Warren, the Massachusetts Democrat who has criticized the so-called revolving door between government and finance. Fed officials regularly go to work for Wall Street after leaving the institution, making the commitment notable.“These are the strongest ethics standards ever agreed to by Federal Reserve Board nominees,” Ms. Warren said in a statement on Wednesday. “U.S. Senators and the American people can be confident that these public servants will make sound economic policy decisions in the public’s best interest.”Republicans have been questioning Ms. Raskin’s nomination by highlighting her stint on the board of directors for a financial technology company, Reserve Trust.The company got a critical account with the Fed — known as a master account — while Ms. Raskin was on the company’s board. The account provided the firm with advertisable benefits, like access to the Fed’s payments system.During her confirmation hearing before the Senate Committee on Banking, Housing and Urban Affairs last week, senators questioned whether she had used her previous positions at the Fed and Treasury to help secure the account. Ms. Raskin did not confirm or deny whether she had been in touch with the company’s local Fed bank while she sat on its board.The Federal Reserve Bank of Kansas City, which approved the master account, has said that it “did not deviate from its review process in evaluating this request.”Senator Patrick J. Toomey, Republican of Pennsylvania, asked Ms. Raskin to respond in writing by Wednesday about the Reserve Trust situation.Ms. Raskin, in her response, said she did “not recall any communications I made to help Reserve Trust obtain a master account. Had I done so, I would have abided by all applicable ethics rules in such communications.”Amanda Thompson, the communications director for Republicans on the Banking Committee, called those responses a “case of selective amnesia.”The White House has continued to stand behind its nominees. Christopher Meagher, a spokesman for the White House, called the Republican questioning “smears” and said that they “continue to fall flat in the face of scrutiny and facts.”Dr. Cook, Dr. Jefferson and Ms. Raskin are up for confirmation alongside Jerome H. Powell — who Mr. Biden renominated to be Fed chair — and Lael Brainard, a Fed governor who is the Biden administration’s pick for vice chair.Senator Sherrod Brown, Democrat of Ohio and the chairman of the Banking Committee, said last week that all five candidates would face a key committee vote on Feb. 15. More

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    Sarah Bloom Raskin Faces a Contentious Senate Hearing

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    Sarah Bloom Raskin is a longtime Washington policy player with progressive credentials and a track record of speaking out against the fossil fuel industry, qualities that helped her to win the White House’s nomination to be America’s top bank cop.But those same views could leave her with a narrow path to confirmation as the Federal Reserve’s vice chair for supervision — especially if Senator Ben Ray Luján, a New Mexico Democrat who is recovering from a stroke, is not present for her vote before the full Senate. (A senior aide to Mr. Luján said he was expected to make a full recovery, and would return in four to six weeks, barring complications.)And Ms. Raskin’s views are almost certain to ignite sparks at her hearing before the Senate Banking Committee on Thursday.Ms. Raskin has been nominated alongside Lisa D. Cook and Philip N. Jefferson, both economists up for seats on the Fed’s Board of Governors. Ms. Raskin, Dr. Cook and Dr. Jefferson will field questions from the Senate Committee on Banking, Housing and Urban Affairs at 8:45 a.m. on Thursday.Ms. Raskin, a former Fed governor and high-ranking Treasury official who was most recently a professor at Duke Law School, is seen as a known entity by the banking industry that she would oversee. But business groups have been critical of her attention to climate issues — including an opinion piece she wrote in 2020 criticizing the Fed’s decision to design one of its emergency loan programs in a way that allowed fossil fuel companies to access emergency loans.“I’m deeply concerned that Sarah Bloom Raskin has — let’s be honest, she has explicitly, publicly advocated that the Fed use its powers to allocate capital,” Senator Patrick J. Toomey of Pennsylvania, the top Republican on the committee, said in an interview on Tuesday. “I think that’s disqualifying, and I think that is going to be a topic of discussion.”Such full-throated opposition from Republicans may mean more than just a heated hearing — Ms. Raskin may need to maintain the support of every Democrat in the Senate to stay on the narrow path to confirmation. If Democrats were to lose their fragile grasp on the Senate majority because Mr. Luján has not returned yet, it is not clear that she would garner the votes she would need to pass.Fed nominees need a simple majority to clear the Senate Banking Committee and then to win confirmation from the Senate as a whole, meaning that it is possible that Ms. Raskin could skate through if all 50 senators who caucus with Democrats vote in her favor, with Vice President Kamala Harris breaking a tie.Vice chair for supervision is arguably the most important job in American financial regulation, and given those high stakes, Ms. Raskin’s chances are being closely watched.“I’m not expecting her to get many, if any, Republican votes,” said Ian Katz, a managing director at Capital Alpha Partners, explaining that he thinks she will ultimately secure enough Democratic support to pass, assuming all the Senators, including Mr. Luján, vote. “You hear different things from the industry: You hear some concerns that she is too progressive, but you also hear that she’s well within the mainstream.”Oil and gas businesses are mounting a campaign against more decisive climate monitoring by the Fed, worried that the central bank will subject banks to stringent oversight that dissuades them from lending money to the industry. This could bring skeptical questioning for all three nominees.“I am concerned about all of the Fed nominees and their apparent willingness, despite what some of them said, to include bank and financial regulations designed to prohibit legal industries from operating in the United States borrowing money,” Senator Jerry Moran of Kansas, a Republican who sits on the committee, said on Wednesday.Mr. Toomey said during an interview on Wednesday that he also had some reservations about Dr. Cook.Lisa D. Cook, a Michigan State University economist well known for her work in trying to improve diversity in economics, will also face questions from the committee on Thursday.Brittany Greeson for The New York TimesMuch of the opposition coming from Republicans and lobbyists alike is aimed at Ms. Raskin, though. She argued in a Project Syndicate column recently that “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 climate risk.”But Ms. Raskin struck a gentler tone in her prepared testimony for the hearing, released Wednesday night, noting that the role does not involve excluding certain sectors and asserting that bank supervisors must ensure that “the safety of banks and the resilience of our financial system are never compromised in favor of short-term political agendas or special interest groups.”It is unclear at this point whether those assurances will be enough for her critics.The Chamber of Commerce, in a letter to the Senate committee last week, urged lawmakers to ask Ms. Raskin about her position on whether the Fed’s regulatory approach should try to curb credit access for oil and gas companies. The business group asked whether Ms. Raskin would be independent of politics. After Democratic members of the Federal Deposit Insurance Corporation board clashed with and ultimately precipitated the resignation of the Trump appointee Jelena McWilliams, who was the regulator’s chairwoman, some Republicans have raised concerns that something similar could happen at the Fed. In December, partisan politics helped to scupper the nomination of Saule Omarova, who withdrew herself from consideration to be comptroller of the currency after attacks from Republicans and banking lobbyists, and as she struggled to draw wide enough support from Democrats.By contrast, the banking industry has taken a more benign view of Ms. Raskin. The Financial Services Forum, which represents the chief executive officers of the largest banks, congratulated Ms. Raskin and the other White House Fed picks in a statement after their nominations were announced, as did the American Bankers Association.Ms. Raskin is seen as a qualified candidate who understands the roles various regulators play in overseeing banks, according to one banking industry executive who asked not to be identified discussing regulatory matters. Even though bankers expect Ms. Raskin to be confirmed, they are awaiting more clarity around her stance on climate finance and disclosures, the executive said.As she is received as a mainstream pick, centrist Democrats have sounded content with Ms. Raskin.“I’ve been very impressed with her,” Senator Mark Warner, Democrat of Virginia, said on Tuesday, adding that he had not met her yet but that he was “favorably inclined” and noting that banks have expressed comfort with her.Senator Joe Manchin III from West Virginia, a key centrist Democrat, said on Wednesday that he hadn’t yet studied the nominees, adding that he’s “going to get into that” because he’s “very concerned” about issues including inflation.A Harvard-trained lawyer, Ms. Raskin is a former deputy secretary at the Treasury Department, where she focused on financial system cybersecurity, among other issues. She also spent several years as Maryland’s commissioner of financial regulation. Ms. Raskin is married to Representative Jamie Raskin, a Maryland Democrat.If confirmed, she would be only the second person formally appointed as the Fed’s vice chair for supervision, succeeding Randal K. Quarles, a Trump administration pick who typically favored lighter and more precise regulation. Ms. Raskin, by contrast, has a track record of calling for stricter regulation. Dr. Cook and Dr. Jefferson might both might be quizzed about their views on policy and professional backgrounds. The Fed has seven governors — including its chair, vice chair and vice chair for supervision — who vote on monetary policy alongside five of its 12 regional bank presidents. Governors hold a constant vote on regulation.Philip N. Jefferson, an administrator and economist at Davidson College who has worked as a research economist at the Fed, is also a nominee for the Fed’s board.John Crawford/Davidson CollegeDr. Cook, who would be the first Black woman ever to sit on the Fed’s board, is a Michigan State University economist well known for her work in trying to improve diversity in economics. She earned a doctorate in economics from the University of California, Berkeley, and was an economist on the White House Council of Economic Advisers under President Barack Obama.“High inflation is a grave threat to a long, sustained expansion, which we know raises the standard of living for all Americans and leads to broad-based, shared prosperity,” Dr. Cook said, after emphasizing her decades of experience, calling tackling America’s current burst in prices the Fed’s “most important task.”Dr. Jefferson, who is also Black, is an administrator and economist at Davidson College who has worked as a research economist at the Fed. He has written about the economics of poverty, and his research has delved into whether monetary policy that stokes investment with low interest rates helps or hurts less-educated workers.He seconded that the Fed must “ensure that inflation declines to levels consistent with its goals,” speaking in his prepared testimony.Dr. Cook, Dr. Jefferson, and Ms. Raskin are up for confirmation alongside Jerome H. Powell — who had previously been renominated as Fed chair — and Lael Brainard, a Fed governor who is the Biden administration’s pick for vice chair. Senator Sherrod Brown of Ohio, the committee chairman, said all five candidates will face a key committee vote on Feb. 15, and that Senator Chuck Schumer of New York, the majority leader, “knows to move quickly” for a full floor vote.If all pass, the Fed’s leadership will be the most diverse in both race and gender that it has ever been — fulfilling a pledge of Mr. Biden’s to make the long heavily male and white central bank more representative of the public that it is intended to serve. More