The tensions, likely to surface at Cook’s Senate confirmation hearing on Thursday, underscore the political dangers facing the Fed, led by Republican Chairman Jerome Powell, which is struggling to play its part in heated debates over racial injustice and climate change define. Neither issue falls specifically within its mandate, but both have become major public concerns with policy implications.
“Both [former Fed Chair] Janet Yellen and Jay Powell speak before Congress on the Racial Wealth Gap. This is nothing new,” said Marc Morial, President and CEO of the National Urban League. “But those who are uncomfortable with that respond to throwing mud. These attacks ring hollow because there is very little behind them.”
Cook was chosen to fill Biden’s Fed along with four others, including Powell — nominated for a second term as chairman — and Lael Brainard, a current board member selected for promotion to vice chairman. If all five candidates are confirmed, the central bank would have its most diverse board in history. Philip Jefferson, a former Federal Reserve economist who is also black, was selected for another seat, while Sarah Bloom Raskin, the president’s choice for the Fed’s chief bank officer, would become the first woman appointed to the influential post will.
Austan Goolsbee, who chaired the White House Council of Economic Advisers under President Barack Obama, called it a balanced list of candidates. Cook has not focused her research on monetary policy, but Goolsbee pointed to her expertise in international economics – she worked on the euro crisis while she was an economist at CEA in 2011-2012 and advised several African governments – as useful background for a Fed governor.
“You’re hiring someone with experience in financial regulation, someone with expertise in monetary policy, and someone with macro and international expertise,” Goolsbee said, citing Raskin, Jefferson and Cook. “That’s a perfectly coherent, good idea to give the Fed an experience balance.”
Cook has also garnered a flurry of support in the business corners of Twitter from well-known economists like Adam Posen of the Peterson Institute and Professor Paul Romer from New York Universitywho taught her.
“Cook’s talents as an economic researcher and educator make her a good candidate for the Fed and contributes to the diversity of policy perspectives,” said Glenn Hubbard, chairman of the Council of Economic Advisers during the George W. Bush administration.
White House spokeswoman Emilie Simons said Cook’s qualifications and experience “speak volumes and underscore why President Biden nominated her for the Federal Reserve.”
Cook did not immediately respond to a request for comment.
Cook’s background aside, Thursday’s drama will focus on how she and Raskin view the central bank’s role on climate change and racial justice in particular.
“I am very concerned about any candidate who goes beyond what I see as the Federal Reserve’s limited mandate,” said Sen. Bill Hagerty (R-Tenn.) to POLITICO on Wednesday.
The Biden nominees would join the Fed at a crucial time, when it is withdrawing its extraordinary support for the economy and is expected to raise interest rates to curb a rise in consumer prices.
According to Powell, the Fed needs to get inflation under control to sustain the recovery and ultimately produce better outcomes for all workers.
In their criticism of Biden and the price jumps that have occurred under his watch, Republicans have said inflation is particularly hurting lower-income Americans, a population that is disproportionately comprised of people of color.
In recent years there have been increasing calls for the Fed to pay more attention to structural inequalities in the economy, such as unemployment among black Americans, which has historically been twice as high as that of their white counterparts. The Fed itself found that the average black family owned less than 15 percent of the wealth of white families in 2019, despite what was financially one of the best years in history for people of color.
“Wealth (or a lack thereof) may transcend generations and may reflect, among other things, a legacy of discrimination or inequality in housing, education and the labor market,” a lined paper to the poll results.
Regional Fed banks have also hosted a series of “Racism and the Economy” events on the impact of discrimination in housing, criminal justice, healthcare and more.
Toomey highlighted this series as a branch into “racial justice” activism, arguing that addressing racism and climate change is the responsibility of other officials, including elected lawmakers, not the nation’s monetary authority.
“Racism is, of course, despicable and has no place in our society,” he wrote to Fed officials. “However, this topic is full of ideological assumptions and interpretations.”
Meanwhile, labor economists like Howard University professor William Spriggs have cited the price of higher interest rates and pointed to more than 10 percent black unemployment in the US while the Fed fought aggressive inflation in the 1980s.
But the pressure to hold back rate hikes was not without backlash. “We have a generation of central bankers who define themselves by being alert,” former Treasury Secretary Larry Summers said at a conference organized by the Institute of International Finance last October. He said the central bank should pay more attention to controlling inflation.
Toomey said in a Bloomberg TV interview on Wednesday that looking at demographic trends makes sense, considering who’s still on the fringes of the workforce and estimating when employment is likely to return to pre-pandemic levels.
“But it’s going to be very dangerous if the Fed decides, you know what? We’re running the economy too hot, we’re running inflation higher than we’d normally expect because there’s a certain subset of Americans that we think haven’t made enough progress on their unemployment rate,” he said.
Morial said there are several ways research into racial trends can help shape the Fed’s approach, including through its oversight of banks, such as through the anti-redlining law known as the Community Reinvestment Act. He also said the central bank has a “bully pulpit” through which it can help drive policy making, including through its extensive research.
“The Fed’s role in tackling the racial wealth gap lies in the combination of their strengths,” he said.