Fed will raise rates whether or not Biden’s nominees are confirmed, economists say

Federal Reserve Chair Jerome Powell leaves a meeting in the office of Senator Chris Van Hollen, D-Md., in Hart Building on Wednesday, October 6, 2021.

Tom Williams | CQ Roll Call, Inc. † Getty Images

There may be plenty of reasons to confirm President Joe Biden’s nominees to the Federal Reserve, but economists say the concern that the central bank won’t act to curb inflation is not among them.

The Fed is virtually guaranteed to raise interest rates next month to stem rising prices, even if Sarah Bloom Raskin, Lisa Cook and Philip Jefferson are yet to be confirmed by the Senate, according to three economists who spoke to Slice Mag.

The Fed will “raise interest rates in March,” said Jason Furman, chairman of the Council of Economic Advisers in the Obama administration. “The only question is, are they increasing by 25 basis points or 50 basis points?”

The White House and top Democrats have expressed concern in recent days that without a fully staffed board of governors from the Fed, the central bank will lose its edge on rising prices. But economists suggested that the urgency behind that reporting is politically motivated and that the Fed’s chances of suppressing inflation are not tied to this confirmation process.

Democrats on the Senate Banking Committee have been frustrated by an ongoing Republican boycott that prevents them from promoting all five of the president’s Fed candidates, including current board chairman Jerome Powell and Lael Brainard.

The GOP says the main reason behind their blockade is concerns about Raskin, her views on climate policy and her previous work for fintech firm Reserve Trust.

But economists who follow the inflation outlook say the Fed is equipped to curb inflation even as politics remain messy.

Furman said lawmakers should take comfort in the fact that the Fed has already announced several rate hikes.

“I do not think [the nominees] change the course of monetary policy in some way or another drastically in the near future,” Furman, now a professor of economics at Harvard University, said of Raskin, Cook and Jefferson.

Asked for comment, the White House referred Slice Mag to a statement by Treasury Secretary Janet Yellen in January about the president’s candidates.

“I am confident that these nominees will build on that progress. I also know that these individuals will respect the tradition of an independent Fed as they work to fight inflation, support a strong labor market and ensure that our economic growth benefits all workers,” said Yellen. said on January 14.

“I firmly believe that a fully staffed Federal Reserve is critical to our economic success, and I urge the Senate to act quickly to confirm these nominees,” she added at the time.

The Fed, the world’s most powerful central bank, has been instructed by Congress to maximize employment and control inflation through interest rate adjustments. It tends to increase borrowing costs when it thinks the economy may overheat, and it lowers rates in times of economic constraint.

It cut rates to nearly zero in the spring of 2020 as the Covid-19 pandemic swept across the world, forcing thousands of businesses across the country to shut down. But now, with vaccines widely available and annual inflation hovering north of 7%, the Fed is widely expected to make it more expensive to borrow in 2022.

According to the CME Group’s FedWatch tool, there is a 71% chance that the Fed will increase overnight lending by 25 basis points during its March meeting, according to the CME Group’s FedWatch tool. while 29% bet they’ll get big with a 50 basis point jump.

But with Republicans holding back the confirmation of the president’s nominees, some Democrats in recent days have suggested the Fed could be without enough firepower to stem precipitous inflation.

“Everyone understands that we need a full Federal Reserve Board — the first in nearly a decade — to tackle inflation and lower prices for American families,” White House press secretary Jen Psaki said Wednesday.

That sentiment was echoed a day later by Senator Sherrod Brown, the chair of the Senate Banking Committee that tries to recommend the president’s candidates to the broader Senate.

Brown, D-Ohio, also hinted at the ongoing boycott of the GOP and Republican Senator Pat Toomey’s demand to hold Raskin in for further questioning.

“Ranking member Toomey is holding back our fight against inflation because Ms. Bloom Raskin doesn’t remember a phone call from five years ago,” Brown said in a press release on Thursday.

Moody’s Analytics economist Mark Zandi said on Thursday that he likes all of Biden’s nominees, but added that he is confident the Fed will raise next month.

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“Oh yeah. That’s a slam dunk. It’s just a matter of how many rate hikes this year, and before the March meeting, whether they should make a 50 basis point hike instead of a quarter increase,” Zandi said. chief economist at Moody’s Analytics Thursday.

“I think there are many reasons why these nominees should be approved,” Zandi said. “But I wouldn’t put fighting inflation at the top of my list.”

Michael Feroli, chief economist at JPMorgan, went further.

He suggested Thursday night that the addition of Raskin, Cook and Jefferson to the Fed’s governing body would make the central bank more “moderate,” or generally more suited to easing monetary policy and lower rates.

“The board and committee can function just fine without the confirmations,” he wrote in an email. “It’s not like adding three pigeons will speed up the walking cycle.”