Hike rates

Fed to hike rates regardless of confirmation of Biden nominees, economists say

Federal Reserve Chairman Jerome Powell leaves a meeting in the office of Sen. Chris Van Hollen, D-Md., in Hart Building Wednesday, Oct. 6, 2021.

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There may be many reasons to confirm President Joe Biden’s nominees for the Federal Reserve, but economists say concerns that the central bank won’t act to rein in inflation shouldn’t be one of them.

The Fed is virtually guaranteed to raise interest rates next month to combat rising prices, even though Sarah Bloom Raskin, Lisa Cook and Philip Jefferson have yet to be confirmed by the Senate, according to three economists who spoke to CNBC.

The Fed will “raise rates in March,” said Jason Furman, who chaired the Obama administration’s Council of Economic Advisers. “The only question is, are they going up 25 basis points or 50 basis points?”

The White House and leading Democrats have raised concerns in recent days that without a full Fed board of governors, the central bank will lose its edge on rising prices. But economists have suggested that the urgency behind this message is politically motivated and that the Fed’s chances of suppressing inflation are unrelated to this confirmation process.

Democrats on the Senate Banking Committee are frustrated by an ongoing Republican boycott that is preventing them from advancing the five nominees for Fed chairman, including current board members Chairman Jerome Powell and Lael Brainard.

The GOP says the main reason for their blockade is concern over Raskin, his views on climate policy and his previous work for fintech firm Reserve Trust.

But economists who track the inflation outlook say the Fed is equipped to rein in inflation even if policy remains disorderly.

Furman said lawmakers should take comfort that the Fed has already telegraphed several rate hikes ahead.

“I do not think so [the nominees] drastically change the course of monetary policy one way or the other in the near future,” Furman, now an economics professor at Harvard University, said of Raskin, Cook and Jefferson.

Asked to comment, the White House referred CNBC to a statement made by Treasury Secretary Janet Yellen in January about the president’s nominees.

“I’m confident that these candidates will build on this progress. I also know that these people will uphold the tradition of an independent Fed, as they fight inflation, support a strong labor market and ensure that our growth economy benefits all workers,” said Yellen. said on January 14.

“I firmly believe that a fully staffed Federal Reserve is critical to our economic success, and I urge the Senate to move quickly to confirm these nominees,” she added at the time.

The Fed, the world’s most powerful central bank, is tasked by Congress with maximizing employment and controlling inflation through interest rate adjustments. It tends to raise borrowing costs when it feels the economy is overheating, and it cuts rates during tough economic times.

He slashed rates to near zero in the spring of 2020 as the Covid-19 pandemic swept the world and forced thousands of businesses across the country to close. But now, with vaccines widely available and annualized inflation north of 7%, the Fed is expected to make borrowing more expensive throughout 2022.

Investors say there’s a 71% chance the Fed will increase overnight lending by 25 basis points at its March meeting, while 29% are betting they’ll go big with a 50 basis point jump baseline, according to the CME Group’s FedWatch tool.

But as Republicans delay confirming the president’s nominees, some Democrats have suggested in recent days that the Fed may find itself without enough firepower to rein in high inflation.

“Everyone understands that we need a full Federal Reserve Board — the first in nearly a decade — to fight inflation and lower prices for American families,” Jen Psaki said Wednesday. , White House press secretary.

That sentiment was echoed a day later by Sen. Sherrod Brown, chairman of the Senate Banking Committee which is trying to recommend the president’s nominees to the full Senate.

Brown, D-Ohio, also alluded to the ongoing GOP boycott and Republican Sen. Pat Toomey’s request to hold Raskin for further questioning.

“Ranking member Toomey is delaying our fight against inflation because Ms. Bloom Raskin does not recall a phone call from five years ago,” Brown said in a press release Thursday.

Moody’s Analytics economist Mark Zandi said Thursday he likes all of Biden’s nominees, but added he was certain the Fed would rise next month.

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“Oh yeah. It’s a slam dunk. It’s just a question of how many rate hikes this year, and for the March meeting, if they should go for a 50 basis point hike as opposed to a up a quarter point,” Zandi, chief economist at Moody’s Analytics, said Thursday.

“I think there are a lot of reasons these candidates should be endorsed,” Zandi said. “But I wouldn’t put fighting inflation at the top of the list.”

Michael Feroli, chief economist at JPMorgan, went even further.

He suggested late Thursday that the additions of Raskin, Cook and Jefferson to the Fed’s governing body would make the central bank more “dovish,” or better able in general to favor looser monetary policy and lower rates.

“Board and committee can function well without the confirmations,” he wrote in an email. “It’s not like adding three doves would speed up the hiking cycle.”