Dow Today – What Raskin would mean for the Fed
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Raskin and Powell: A dynamic duo? — President Joe Biden is likely to tap progressive favorite Sarah Bloom Raskin for the top job overseeing banks at the Federal Reserve, a person familiar with the matter tells MM, which would mean a tougher stance toward Wall Street and a much bigger focus on climate change at the Fed.
Chair Jerome Powell, a former private equity investor, is no advocate of heavy regulation, though he didn’t oppose rules put in place after the 2008 financial crisis. Still, Raskin’s nomination could lead to some awkward policy disagreements, particularly given that Powell has repeatedly said capital levels are “about right” and charted a narrow mandate for the central bank as it relates to climate change. But Powell and Raskin were previously colleagues and are apparently friends.
As one financial regulatory expert points out: if she’s the pick, Powell will need her support on monetary policy at a very tricky time in dealing with inflation.
“I don’t think either of them is going to be intentionally gearing up for a fight,” said Kathryn Judge of Columbia Law School. “The challenges around monetary policy might also reduce the extent to which the chair is going to be looking to seek out disagreement. He’s going to want the appearance of legitimacy that comes from having a higher level of support.”
While the decision on Raskin is not final (credit to Fintech Zoom and Axios for previous reporting on her candidacy), the nomination of the former Fed governor and onetime deputy Treasury secretary would represent a significant nod to progressives, following the blow of seeing Saule Omarova withdraw her nomination as comptroller of the currency. An announcement on Fed nominees is expected soon, but the timing is unclear (shocking no one).
There are two additional seats open at the central bank, and the White House is considering Lisa Cook and Philip Jefferson, both Ph.D. economists with a strong focus on labor markets, for those slots. (Fintech Zoom initially scooped Jefferson’s candidacy.) They would join only a handful of Black Americans who have been tapped for those coveted posts in the more than century-old history of the Fed.
As odd as it might sound with all the vacancies that abound in financial regulation, all of this means the Biden-era regulatory team might have taken shape. With Marty Gruenberg set to take the reins at the FDIC (and some progressives advocating just keeping him there on an acting basis rather than going through a nomination process), and Acting Comptroller of the Currency Michael Hsu ensconced for the time being — this might be it for now. If Democrats want to make regulatory changes, they need to get cracking. The administrative process takes a while.
Update on Tuesday’s MM scooplet: Powell will have his nomination hearing on Jan. 11, and Brainard on Jan. 13.
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10 a.m. Senate Banking holds a hearing on community development financial institutions … 2 p.m. Fed releases minutes from December policy meeting
FED WEIGHS PROPOSALS FOR EVENTUAL REDUCTION IN BOND HOLDINGS — Fintech Zoom’s Nick Timiraos: “Federal Reserve officials are beginning to map out how and when they could shrink their $8.76 trillion portfolio of Treasury and mortgage securities, which more than doubled amid efforts to stabilize the economy over the past two years.
“At their policy meeting last month, officials agreed to wind down their bond-purchase stimulus program more quickly amid growing concerns about high inflation, setting it on track to end in March. Officials began discussing at that meeting what should happen to the bond holdings after that point, and some are pushing to start shrinking them sooner and faster than they did after an earlier asset-purchase program.”
RECORD 4.5M AMERICANS QUIT THEIR JOBS IN NOVEMBER — AP’s Paul Wiseman: “A record 4.5 million American workers quit their jobs in November, a sign of confidence and more evidence that the U.S. job market is bouncing back strongly from last year’s coronavirus recession. The Labor Department also reported Tuesday that employers posted 10.6 million job openings in November, down from 11.1 million in October but still high by historical standards. Employers hired 6.7 million people in November, up from 6.5 million in October, the Labor Department reported Tuesday in its monthly Jobs Openings and Labor Turnover Survey.”
But, only 17 percent of workers say their pay has kept up with inflation — NYT’s Ben Casselman: “Wages are rising at their fastest pace in years, but prices are rising even faster. Americans have noticed. Only 17 percent of workers say they have received raises that kept up with inflation over the past year, according to a survey of 5,365 adults conducted last month for The New York Times by Momentive, the online research firm formerly known as SurveyMonkey. Most of the rest say either that they have received raises that lagged price increases or that they have received no raise at all; 8 percent of respondents said they had taken a pay cut.”
MAINSTREAM LENDERS DABBLE IN CRYPTO OUTSIDE THE U.S. — Fintech Zoom’s Patricia Kowsmann: “Mainstream banks outside the U.S. are sampling cryptocurrencies, offering customers ways to invest and store bitcoin and other digital assets. Banco Bilbao Vizcaya Argentaria SA — Spain’s second-largest lender by assets, with operations in Latin America and Turkey — allows customers to hold, buy and sell bitcoin and ether through a digital account. Australia’s largest bank, Commonwealth Bank of Australia, has also launched a pilot program to offer similar services.
“In Germany, a group of savings banks, which together serve 50 million of the country’s 80 million people, said it is considering offering cryptocurrency wallets. If the group proceeds, the move would be a significant step toward acceptance for crypto in a country that is ultraconservative with money.”
KASHKARI’S INFLATION TAKE — Minneapolis Fed President Neel Kashkari writes in a Medium post: “While my baseline forecast remains that the high inflation consumers and businesses are currently experiencing will likely be transitory, I am putting more weight on the possibility that such transitory high inflation could nonetheless lead to an increase in long-term inflation expectations above our 2 percent target. Hence, I now believe the FOMC must balance what I see as two essentially opposing risks: 1) transitory high inflation leads to an increase in long-term inflation expectations, which then leads to sustained high inflation, and 2) once the COVID-19 shock finally passes, the economy returns to the low-growth, low-inflation regime it operated in for the 20 years prior to the pandemic.”
SLUMPING TECH STOCKS WEIGH ON S&P 500 — AP’s Damian J. Troise and Alex Veiga: “Slumping technology stocks left the S&P 500 slightly lower on Wall Street Tuesday, even as the Dow Jones Industrial Average of 30 blue-chip companies marked another record high. The S&P 500 slipped 0.1 percent, while the tech-heavy Nasdaq gave up 1.3 percent. Microsoft, Apple, and major chipmakers like Nvidia sank, even as banks and other sectors rose. Bond yields continued to climb. The yield on the 10-year Treasury note rose to 1.65 percent. Oil prices rose, which helped send energy stocks higher. Economic reports and company earnings get rolling again this week after the year-end holidays.”
BIDEN ECONOMIC AGENDA REMAINS STUCK — Bloomberg’s Erik Wasson and Laura Litvan: “Senator Joe Manchin said Tuesday he’s not in talks with the White House or top Democrats on reviving President Joe Biden’s $2 trillion tax and social spending agenda, leaving the administration’s signature domestic initiative stalled. ‘There is no negotiation going on at this time,’ the West Virginia Democrat, a pivotal vote in the evenly divided Senate, told reporters as he returned to his Capitol Hill office for the first full Senate legislative day of 2022. ‘To do some of the things that have been proposed takes more of a majority than we have.’”
KASHKARI NOW SEES TWO 2022 RATE RISES — Fintech Zoom’s Michael S. Derby: “Federal Reserve Bank of Minneapolis President Neel Kashkari, who has been one of the central bank’s biggest supporters of providing stimulus to help the economy navigate the coronavirus pandemic, said he now believes more aggressive monetary policy actions will be needed to deal with high inflation. In an essay posted on the bank’s website, Mr. Kashkari also said he supported the Fed decision last month to accelerate the drawdown of its asset-buying stimulus effort.”
NEW YORK’S ECONOMY COULD STRUGGLE FOR YEARS TO COME — NYT’s Matthew Haag: “The economic recovery in New York will continue to lag that of the United States for years, with the city not expected to rebuild its labor force to prepandemic levels until late 2025, a year later than initially projected, according to a new economic forecast by the city’s Independent Budget Office. The report lays out a challenging road to recovery for New York, whose economy is underpinned by service industries closely tied to travel and tourism that collapsed at the start of the pandemic in spring 2020 and have been slow to recover.”