News: Why the Fed stalemate really matters

Wednesday, February 16, 2022

Why the Fed stalemate really matters

Feb 16, 2022

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Senate Republicans, frustrated by what they say is a lack of candor by a presidential nominee, have gone nuclear, refusing to allow a vote on any of President Joe Biden's Federal Reserve picks on Tuesday until they get more information.

With Democrats intent on advancing the slate together and insisting that nominee Sarah Bloom Raskin has answered every question asked of her, the two sides are at a stalemate.

What exactly would Republicans need to see to stand down? It's not entirely clear. "We're not there yet," one person familiar with Republicans' thinking tells MM.

Raskin has taken the brunt of criticism from GOP lawmakers led by Sen. Pat Toomey over the president's Fed picks, primarily for her views on climate-related financial risks. What they've seized on, however, is Raskin's time on the board of a state-chartered trust company, raising questions about her role in that firm's successful bid to access the Fed's payments system.

The Kansas City Fed has issued a rare statement saying that nothing about Raskin's involvement was improper or unusual, and ethics officials have suggested she did nothing wrong. (Republicans also haven't actually said Raskin did anything wrong either, but are essentially saying they don't have enough information to know.)

"Committee Republicans aren't seeking to delay her vote. We're seeking answers," Toomey said Tuesday.

Would new information really change their views? Many GOP lawmakers have signaled they are likely to oppose her nomination. Republicans on the Senate Banking Committee hope additional information could sway some colleagues outside the committee who may be on the fence.

White House spokesman Michael Gwin said Raskin has held multiple one-on-one meetings with senators, participated in a briefing with committee staff and responded to 189 post-hearing questions. "Senator Toomey has already made clear that he will not support Raskin's confirmation, and it's readily apparent that he has no interest in learning more about Raskin's views – this is just yet another delay tactic after his attacks on her have fallen apart under basic scrutiny," he said.

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Raskin doesn't need Republican votes, as long as she can win the support of every Senate Democrat. But GOP lawmakers have gotten around that: By refusing to show up for the committee vote, and depriving the panel of a quorum needed to advance her nomination to the Senate floor, they can keep Raskin in perpetual process limbo.

Tony Fratto, an official in President George W. Bush's White House and Treasury Department and a partner at Hamilton Place Strategies, said it's an abuse of the Senate's powers to advise and consent on nominations.

"The Senate's job is not to block nominees who they disagree with on policy, and that's what this is," Fratto said. "It's wrong. I disagree with Sarah Raskin on some policies, but she is eminently qualified — as the Senate itself has repeatedly affirmed in the past. This is not serious. It's about frustrating the process, and nothing more."

Toomey's office noted that Brown pursued a similar strategy in 2017, joining Senate Finance Committee Democrats in a boycott of votes on Trump nominees Steven Mnuchin and Tom Price. (Republicans, then in the majority, unilaterally changed the panel's rules and approved the nominees — something Democrats can't do this time in an evenly divided Senate.)

Does it really matter?

Sen. Mike Crapo (R-Idaho) was one of several Republicans who said he's sticking by Toomey, in part because "the Federal Reserve can remain fully engaged as it now is," he told us.

He's technically right, says Sarah Binder, a political science professor at George Washington University who has studied the Fed's governance and its relationship with Congress.

The Fed board this month named Fed Chair Jerome Powell chair pro tempore, and the Federal Reserve Act doesn't include any limitations on his authority while his confirmation is pending. Separately, the Fed's interest-rate-setting committee also elected Powell as its chair, so he can continue leading that body as it deliberates how best to rein in persistent inflation.

Fed Gov. Lael Brainard, who has been tapped to serve as Powell's No. 2, is already on the board, along with two other governors, Trump appointees Michelle Bowman and Christopher Waller.

But but but — The Fed currently has no vice chair for supervision, one of the government's top Wall Street watchdogs. And holding Powell and the two vice chair positions in suspension also matters politically, Binder argues.

Some historical context: "The requirement that the Senate confirm the chair to a separate four-year term is relatively new over the course of the Fed's first century. Lawmakers added it in 1977 as a tool to hold the Fed more accountable to Congress and not merely to the president who appointed the chair.

"The Senate vote cements that relationship — especially at a perilous moment for the Fed facing a generational high inflation," Binder adds. "And I suspect a confirmation vote signals the legitimacy of the chair's authority to central bankers around the world."

Tune in — Toomey will join former Treasury Secretary Larry Summers at 11:30 a.m. at a virtual forum on Fed independence, hosted by No Labels.

IT'S WEDNESDAY — TGIW. Let's just be grateful we're (almost) halfway through the week. Have a tip or idea about something we should be covering? Give me a shout: kdavidson@politico.com or @katedavidson.

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Driving the Day

January retail sales data released at 8:30 a.m. … House Financial Services hearing on federal support for minority depository institutions and community development financial institutions at 10 a.m. … Federal Open Market Committee minutes released at 2 p.m.

TREASURY: REGULATORS CAN'T FULLY OVERSEE STABLECOINS — Our Sam Sutton: "Regulators don't have enough authority to fully oversee stablecoins, and no action from the Financial Stability Oversight Council can change that, Treasury undersecretary for domestic finance Nellie Liang said on Tuesday."

"FSOC has some tools but it is not a substitute. It would not provide a comprehensive, consistent framework that legislation could provide," Liang said at a Senate Banking Committee hearing.

—In an op-ed in Barron's this morning, Circle CEO Jeremy Allaire and Stellar Development Foundation CEO Denelle Dixon argue the government should help set clear rules of the road for stablecoins to protect monetary policy, consumers and innovation. "These rules will create stability through the use of strong U.S. dollar stablecoins, which in turn support the government's goal of having a strong dollar."

POLITICO PRO Q&A: BROCK PIERCE, CRYPTO TITAN — Our Amanda Eisenberg sat down with Brock Pierce, the cryptocurrency titan who co-founded Tether and is exploring a run for Sen. Patrick Leahy's (D-Vt.) seat, to discuss the "future economy" in New York.

How do you convince someone who's unbanked to convert that money to crypto, Amanda asked. "You don't even need to be a crypto sort of currency person to benefit from these technologies," Pierce said. "It's driving accessibility in dollars and allowing people to receive a yield on their dollars. The interest rates, with completely securitized environments with smart contracts, code-is-law kind of thing, you're getting between 5 and 15 percent interest on your digital dollars with near-zero risk."

SENATE TO SETTLE FOR SYMBOLIC REBUKE AS RUSSIA SANCTIONS TALKS FIZZLE — Our Andrew Desiderio: "The Senate's ambitions to sanction Russia shrank so quickly this week that instead, Vladimir Putin is being confronted only with a sternly worded statement.

"As the U.S. warns of a potentially imminent Russian invasion of Ukraine, senators paused their flailing negotiations over punishments for Moscow — designed to deter military action that some see as inevitable — and instead released a symbolic bipartisan statement affirming Ukraine's sovereignty as they prepare for a week-long recess."

—Meanwhile: Behind the scenes, U.S. and European officials are still hammering out the details of how hard to hit Moscow with sanctions, and when, our Nahal Toosi, Andrew Desiderio and Jacopo Barigazzi report.

US ACCUSES ZERO HEDGE OF SPREADING RUSSIAN PROPAGANDA — AP's Nomaan Merchant — "U.S. intelligence officials on Tuesday accused a conservative financial news website with a significant American readership of amplifying Kremlin propaganda and alleged five media outlets targeting Ukrainians have taken direction from Russian spies.

"The officials said Zero Hedge, which has 1.2 million Twitter followers, published articles created by Moscow-controlled media that were then shared by outlets and people unaware of their nexus to Russian intelligence. The officials did not say whether they thought Zero Hedge knew of any links to spy agencies and did not allege direct links between the website and Russia.

"Zero Hedge denied the claims and said it tries to 'publish a wide spectrum of views that cover both sides of a given story.'"

DEMOCRATS VOW TO CURB INFLATION, AS GOP SAVORS TOLD-YOU-SO MOMENT — Bloomberg's Laura Litvan: "Congressional Democrats grappling with surging inflation nine months before the midterm elections are lining up legislation to address rising gas, medical and food costs — or at least show voters they're trying.

"Democrats, particularly those in hotly competitive races, just introduced legislation that would suspend the federal 18-cents-per-gallon gas tax until next year and are drafting a bill that would reduce insulin prices. Other options include pulling out popular pieces of President Joe Biden's stalled economic agenda addressing prescription drug prices and child care costs."

MORGAN STANLEY'S PASSI FACES BLOCK TRADING PROBE — Bloomberg's Gillian Tan, Katherine Burton and Sridhar Natarajan: "U.S. authorities are examining the involvement of one of Morgan Stanley's top equities executives in block trades as part of an investigation into whether banks improperly alerted certain clients to market-moving transactions, according to people with knowledge of the matter.

"Pawan Passi, who ran Morgan Stanley's U.S. equity syndicate desk and led the firm's communications with investors for equity transactions, is among people whose activities are facing scrutiny, the people said, asking not to be identified describing the confidential inquiry. Bloomberg reported in November that Morgan Stanley had put Passi on leave."

FED WATCH

THE FED MISSED INFLATION. CAN JAY POWELL TAME IT WITHOUT CAUSING A RECESSION? — WSJ's Nick Timiraos: During the first year of the pandemic, Federal Reserve Chair Jerome Powell earned a reputation as a monetary dove, rolling out innovative policies aimed at preventing a financial and economic meltdown. Today, he is changing into a hawk willing to be equally improvisational to tame inflation, now running at a 40-year high of 7.5 percent.

JANUARY WHOLESALE INFLATION SURGED — AP's Paul Wiseman: "Wholesale inflation in the United States surged again last month , rising 9.7% from a year earlier in a sign that price pressures remain high at all levels of the economy. The Labor Department said Tuesday that its producer price index — which measures inflation before it reaches consumers — jumped 1% from December."

Jobs Report

Meghan Burris has joined the National Association of Federally-Insured Credit Unions as vice president of communications and media relations. She was most recently a principal at MKB Strategies and is a Trump administration alum.

Joe Adler has joined the Alliance for Innovative Regulation as director of content. Adler was most recently Washington bureau chief for American Banker, where he worked since 2006.

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.

Divorcing couples fight over the kids, the house and now the crypto. — NYT's David Yaffe Bellany

Prosecutors on Monday accused a former Goldman Sachs banker of seeking to make millions of dollars laundering money looted from Malaysia's 1MDB sovereign wealth fund, at the outset of a trial that could shed light on the bank's response to warnings of corruption. —Reuters' Luc Cohen

Sea levels along U.S. coasts will rise by as much as a foot in the next 30 years as climate change accelerates, leading to a 'dramatic increase' in millions of Americans' exposure to flooding, scientists warned in a federal report published Tuesday. — Our Zack Colman

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