President Joe Biden’s effort to build a more diverse, climate-conscious Federal Reserve faces its first hurdle Tuesday as the Senate Banking Committee votes on whether to advance five nominees to the full Senate for consideration.

The committee is working to advance nominees who would fill the Fed board for the first time in years as the central bank faces soaring inflation, the economic uncertainty of the pandemic and demands by at least some to put climate change on its agenda.

“We must have a fully functioning Federal Reserve Board, with all seven members, ready to meet these challenges. Ready to ensure our economy continues to prosper. It’s been almost a decade since we’ve had all seven board members,” Senate Banking Chairman Sherrod Brown, D-Ohio, said at the confirmation hearing this month. “That’s what makes this so urgent.”

The committee will consider two sitting board members: Chairman Jerome Powell for a second term as chairman and Lael Brainard to become vice chair. It will also vote on the nominations of Sarah Bloom Raskin to be vice chair for supervision, as well as Lisa Cook and Philip Jefferson. Criticism of the nominees has focused on Raskin and Cook.

Biden’s nominees would shift control of the board to Democrats, although Powell, a Republican, would still lead it. The Fed’s 14-year terms could allow at least some nominees to shape monetary and regulatory policy for years. The chairman’s term is for four years. 

Confirmation would give the board four women, up from two currently, and two Black members, ushering in the most diverse Fed board in history by gender and race. The nominees are also expected to bring a greater emphasis on climate change and the risk it poses to banks and the economy.

Diversity

Cook would become the first Black woman on the board, while Jefferson would become only the fourth Black man. The three other women would be sitting members Brainard and Michelle Bowman and nominee Raskin. 

“These leaders reflect the country. Historically, the Fed has overwhelmingly been made up of people who look like me and think like Wall Street,” Brown said at a news conference about the nominations last month.

Advocacy groups say the nominees would bring needed perspectives to the board, especially as previous economic recoveries left African Americans behind.

“These historic appointments represent material progress toward building a more inclusive and resilient financial system that will advance Black economic mobility,” said David Clunie, executive director of the Black Economic Alliance. The group of Black business leaders pushes for policies to drive economic growth in Black communities.

“It’s about time that we place more professionals with the lived and professional experience of Black Americans in leadership at the Federal Reserve to steer policy, practices, and regulation that will help create a more inclusive economy and proactively close the racial wealth gap,” Clunie said in a statement. 

The committee is expected to advance Jefferson, an economics professor and vice president for academic affairs at Davidson College in North Carolina, with bipartisan support. Patrick J. Toomey, Senate Banking’s ranking Republican, said he planned to vote for him at the confirmation hearing Jefferson shared with Cook and Raskin this month.

Republicans have, however, taken issue with Cook’s credentials, saying her academic work has focused too little on macroeconomics. A professor of economics and international relations at Michigan State University, she defended her work at the confirmation hearing. 

“I certainly am proud of my academic background. I know that I have been the target of anonymous and untrue attacks on my academic record,” she said. “I have a Ph.D. in economics from the University of California, Berkeley. I specialized in macroeconomics and international economics.”

Cook was a senior economist on the White House Council of Economic Advisers from 2011 to 2012 and worked for the Treasury Department from 2000 to 2001. She previously held visiting positions at the Fed banks of Minneapolis, New York and Philadelphia and the National Bureau of Economic Research. 

Jefferson’s term would end in 2036 if he’s confirmed, and Cook would finish out a term ending in 2024, though she would be eligible to be nominated for a full 14-year term after that. 

Climate policy

Confirmation would also have implications for how the Fed considers climate change as it regulates banks and oversees risks to the financial system. Supporters and critics alike see Raskin as critical in setting the course for the Fed’s climate policy.

As vice chair for supervision, Raskin would be responsible for setting the Fed’s regulatory agenda. The Duke University law school professor has been outspoken about the financial risk posed by climate change and regulators’ duty to address it. Raskin was a Fed board member from 2010 to 2014 and left to become second in command at the Treasury Department until 2017.

“She understands that we need to think about all the financial risks our economy faces — including the possible economic impact of severe weather and climate change,” Brown said at her confirmation hearing. “As we heard from Chair Powell, this is a priority for the Fed.”

Both Powell and Brainard have said they would incorporate climate change into stress scenarios to ensure banks understand their potential exposure to the risk. 

But it’s Raskin who has drawn the most fire from Republicans about her stance on climate change, particularly over a 2020 New York Times op-ed in which she argued that struggling energy companies should have been left out of the Fed’s pandemic relief facilities.

Raskin said during her confirmation hearing that her statements focused narrowly on taxpayer-funded pandemic programs, and that the Fed does not make lending decisions for banks. “Banks choose their borrowers, not the Fed,” she said. 

Toomey, R-Pa., said Raskin’s statements at the hearing bore little resemblance to her previous stances on climate risk.

“This is one of the most remarkable cases of confirmation conversion that I have ever seen,” he said at the hearing. 

Toomey and other Republicans, including Banking Committee member Cynthia Lummis of Wyoming, have also criticized Raskin’s involvement with Reserve Trust, saying she used her influence as a former government official to help secure a Fed master account for the Colorado-based fintech company. 

Montana Democrat Jon Tester, also a Senate Banking member, has said he’s looking more closely at Raskin’s Reserve Trust record before he decides how to vote.

Raskin was on the company’s board of directors from 2017 to 2019 and sold her shares in the company for almost $1.5 million in 2020, according to financial disclosures by her husband, Rep. Jamie Raskin, D-Md.

The Kansas City Fed first denied and later granted Reserve Trust access to the Fed’s payment system while Raskin was on the company’s board of directors. Two Wyoming-chartered cryptocurrency companies have waited much longer for an answer on their master account applications, Lummis said.

Both the Kansas City Fed and Raskin have denied any improper behavior. 

“If you are suggesting anything improper, I want to make very clear that I have, first of all, had the honor to serve in various public capacities, and each time that I left I have been very mindful of the rules regarding departure,” Raskin said at her confirmation hearing in response to questions from Lummis. If confirmed, Raskin’s term would end in 2032, including a four-year stint as vice chair for supervision.