Raskin takes one for the team

By Kate Davidson and Aubree Eliza Weaver

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President Joe Biden’s Federal Reserve nominees made it through their Senate Banking Committee hearing Thursday largely unscathed. It was a textbook example of why administrations prefer to send nominees up in pairs — or better yet, a trio — to avoid any single person drawing too much heat.

Sarah Bloom Raskin, Biden’s pick for Fed vice chair for supervision, took the brunt of Republican questioning, mostly directed at her previous statements on climate change policy. Economist Lisa Cook, a Michigan State professor, took some flak over her views and her qualifications, but much less than one would have expected based on the GOP criticism leading up to the hearing. And Davidson College Professor Philip Jefferson received a warm reception from both sides of the aisle.

All in all, it wasn’t clear that any of the nominations are in trouble — though Raskin likely can’t afford to lose any Democratic votes.

“Our best guess, based on the hearing, is that Raskin advances to the Senate floor with a 12-12 tie vote in the committee,” Capital Alpha’s Ian Katz said in a note after the hearing. “Cook’s vote could also be a draw, though we think she’s more likely than Raskin to get a Republican supporter.”

It’s possible Raskin’s confirmation vote will need to wait until Sen. Ben Ray Luján (D-N.M.), who is recovering from a stroke, is able to participate, Katz added.

“This hearing left us convinced that all three nominees are likely to be confirmed,” said Jaret Seiberg, an analyst at Cowen Washington Research Group.

A few takeaways from the hearing:

—Climate criticism: Raskin spent much of the hearing trying to explain her earlier comments on climate policy and insisting that she does not believe the Fed’s job is to allocate capital to certain favored industries. It didn’t appear to help. “This is one of the most remarkable cases of confirmation conversion I have ever seen,” Sen. Pat Toomey (R-Pa.) said at the end of the hearing, insisting that the Fed under Raskin will ultimately impose new restrictions to steer lending away from the oil and gas sector.

Senate Minority Leader Mitch McConnell on the Senate floor said Raskin “wants unelected bureaucrats to financially bully the private sector into policy changes which lack enough support to become law the honest way.”

— Moderate support: Sens. Jon Tester of Montana and Mark Warner of Virginia, two of the panel’s centrist Democrats, both offered positive feedback for the nominees, an important signal for their confirmation prospects. “I think it’s critically important that the Fed gets all the information they can when they’re dealing with risk to our financial system, and I think that it is rather obvious that climate change has to be part of the information that you gather,” Tester said.

In a statement after the hearing, Warner said the nominees “have long and varied experiences that make them ideal nominees for the Federal Reserve and I look forward [to] working with them to make sure our economic recovery lifts up all of our communities.”

—The master account: One of the trickiest moments for Raskin was her exchange with Sen. Cynthia Lummis (R-Wyo.), who questioned whether Raskin used her influence as a former regulator to help a Colorado-based fintech firm, of which she was a board member. At issue is the firm’s access to the Fed’s payments system, something other fintech companies (including Lummis’ constituents) may not have. “Something doesn’t smell right with the way this played out,” Lummis said, but stopped short of saying what she thought Raskin did wrong and didn’t press her to explain her role.

“Sarah Bloom Raskin has always taken her ethical obligations very seriously during and after her public service,” White House spokesperson Chris Meagher said in a statement.

—The long expansion: All the candidates signaled their willingness to fight elevated inflation. But Jefferson sounded most aligned with Fed Chair Jerome Powell, who has argued that stable prices are necessary to promote a long expansion: “The longer the expansion, the wider they tend to be and the more people are brought into employment and prosperity across socioeconomic groups,” he said. "If I were confirmed, I would very much want to advocate for policies … that would lead to long expansions that are non-inflationary."

IT’S FRIDAY — Happy Jobs Day and TGIF. Let’s all remember to take a deep breath when those payroll figures hit. (And keep on reading for a reminder about why we shouldn’t freak out about today’s jobs report.)

Meet you back here Monday. Meantime, hit us up with your tips and story ideas: kdavidson@politico.com, aweaver@politico.com, or on Twitter @katedavidson and @aubreeeweaver.

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January jobs report released at 8:30 a.m. … Financial Stability Oversight Council open meeting at 10:45 a.m.

THE OMICRON EFFECT — If you missed Tuesday’s Morning Money, here’s a little reminder that today’s jobs report is likely to be bad, bad, bad. That doesn’t mean the economy or the labor market are going south. It’s largely a reflection of the Omicron wave that swept across the country last month, prompting millions of workers to call in sick, or stay out of work to care for sick family members.

For many of those workers, employers don’t count them as employed if they didn’t receive a paycheck during the period when the Bureau of Labor Statistics was collecting monthly employment data. That may make it look as though employers shed thousands of jobs last month — some economists estimate as many as 300,000.

Here’s Jared Bernstein, from the president’s Council of Economic Advisers: “It’s just extremely important to come to this report understanding that the impact of Omicron cases will potentially be to significantly lower payrolls, when many of those folks still have a job, they’re just not being counted.”

Want a better idea of what the labor market looked like last month? Check out the report’s household survey, which asks workers whether they have a job, Bernstein suggested.

FIRST IN MM: ADVOCATES URGE FDIC TO CRACK DOWN ON ‘RENT-A-BANK’ SCHEMES — Today is Chair Jelena McWilliams’ last day leading the FDIC, and more than a dozen consumer advocacy groups are asking the panel’s Democrats — including soon-to-be acting chair Martin Gruenberg — to stop allowing FDIC-regulated banks to front for online lenders skirting state usury caps.

Congress last year adopted a resolution to overturn an OCC rule that made it easier for lenders to evade state interest-rate limits by partnering with banks. While the FDIC never had such a rule, the advocates in a new letter say such arrangements have flourished among FDIC-supervised banks, which “are helping predatory lenders make loans up to 225 percent APR that are illegal in almost every state.”

“The FDIC has the tools that it needs to prevent its banks from fronting for predatory lenders that are evading state law,” said the groups, which include the Center for Responsible Lending, Americans for Financial Reform, NAACP and more than a dozen others.

WEED BANKING: SIXTH TIME’S THE CHARM? — Rep. Ed Perlmutter, the seven-term Colorado Democrat, appears likely to bring the SAFE Banking Act to its sixth floor vote since September 2019, our Natalie Fertig reports.

The cannabis banking proposal has been added as an amendment to the America COMPETES Act, a bill that aims to make American commerce more competitive with China. A House floor vote is expected by the end of this week.

BOSTON FED PUBLISHES DIGITAL DOLLAR RESEARCH — Our Victoria Guida: “The Federal Reserve Bank of Boston on Thursday released its first round of research into how a central bank digital currency might work from a technological standpoint, publishing open-source code for a system that could handle 1.7 million transactions per second.

CRYPTO BILL WOULD EXEMPT SMALL TRANSACTIONS FROM TAXATION — Our Aaron Lorenzo: “Small purchases made with cryptocurrency would be exempt from taxation under bipartisan legislation just rolled out in Congress. The bill would exempt personal transactions made with virtual currency from gross income, so long as any gains are $200 or less.”

GENSLER: SEC RESPONSE TO MEME STOCK MANIA COMING NEXT WEEK — Bloomberg’s Benjamin Bain and David Westin: “The Securities and Exchange Commission is set to consider new stock trading rules in what would be the Wall Street regulator’s most direct response yet to last year’s wild trading in GameStop Corp. and other meme stocks. SEC Chair Gary Gensler said Thursday that the agency is preparing to take up a range of policy changes starting next week that would deal with issues raised by last year’s market frenzy, including shortening the time it takes to settle stock trades.”

FED’S BARKIN SAYS RATES SHOULD MOVE TO PRE-PANDEMIC LEVELS, THEN ASSESS NEXT STEPS — Reuters’ Howard Schneider: “The U.S. Federal Reserve needs to begin raising interest rates but it is too soon to say how far or fast that process will need to go to bring inflation under control, Richmond Federal Reserve president Thomas Barkin said Thursday.”

U.S. CAR PRICES HAVE PASSED THEIR PEAK, ONLINE AUTO SELLERS SAY — Bloomberg’s Alexandre Tanzi: “The record surge in U.S. auto prices — which helped drive inflation to a four-decade high —may finally be over , say two firms that sell cars online. Used-car prices, which have risen at an annual rate above 50% at times during the pandemic, went into reverse last month, according to a new report from CoPilot, a car-buying app.”

SUMMERS REFLECTS ON INFLATION MISTAKES — Larry Summers writes in a Washington Post op-ed that he fears the consensus view that inflation will fall below 3 percent by year’s end “is likely a repeat of last year’s wishful thinking.” While some inflation drivers may prove transitory, such as used car prices, other drivers “might get worse before they get better,” he said.

“Wage growth is likely to keep accelerating . Unless productivity skyrockets or businesses cannot pass on cost increases to customers — all contrary to recent experience or the testimony of business leaders — we now have an underlying inflation rate of 6 percent or more.”

— We told you in MM last Friday about the importance of wage growth and how it interacts with inflation this year as the Fed assesses its next steps.

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.

Europe’s central banks signaled growing concern about soaring inflation and a determination to quench it by raising interest rates , a policy shift that creates risks for investors and the world economy. — WSJ’s Tom Fairless, Isabel Coles and Jason Douglas

A Georgia judge questioned the fairness of the financial industry’s dispute-resolution process in a ruling stemming from a Wells Fargo & Co. customer’s claim that the bank botched his investments. — WSJ’s Ben Eisen

Credit investors are getting more cautious. A key measure of U.S. corporate credit risk reached the highest since November 2020 as U.S. stocks tumbled after disappointing results from Meta Platforms Inc. and a markedly hawkish tone from the European Central Bank. — Bloomberg’s Josyana Joshua and Jack Pitcher

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