What To Expect From A Biden (And Bernie) Fed

Now that Judy Shelton has passed the first big hurdle to be confirmed as a member of the Fed – passing muster with the Senate Banking Committee by a 13-12 party-line vote – let’s assume that the full Senate will confirm her. While it’s not a slam dunk, Republicans do control the chamber by a 53-47 majority, so even if Mitt Romney votes against her, as he says he will, she’s probably in.

Despite what her many detractors believe – that she has the power all by herself to return the U.S. to the gold standard and direct the Fed to do whatever President Trump wants – that probably won’t happen unless Fed chair Jerome Powell resigns or Trump figures out a way to remove him without triggering a massive global financial panic safely. Even then, it’s a fantasy. So Shelton is probably going to be confirmed, and nobody is going to die as a result.

So let’s turn instead to what a Fed under a President Biden might look like. Luckily, the former vice president has publicly revealed what he has in mind, in a short and concise 110-page press release entitled, “Combating the Climate Crisis and Pursuing Environmental Justice,” the product of a “unity task force” set up by Biden, and former presidential candidate Bernie Sanders, whom I guess wrote most of it. I’ll save you the trouble of pouring through it unless you’re feeling masochistic.

Granted, there’s only a little (fortunately) in the tome that deals with the Fed. Indeed, through the magic of word search, I found that there are only eight references to “Federal Reserve” in the document, but what’s there is enlightening about their thinking. No, there’s nothing in there about Fed monetary policy, I suppose to respect the Fed’s independence.

But the recommendations include two new roles for the Fed, one of which is blatantly political and intrusive, something I thought was supposed to be verboten when dealing with the Fed. I guess it depends on who’s in charge. The other would turn the Fed into the 21st-century version of the Bailey Building & Loan.

Let’s start with that one first.

Under the heading, “Ensuring Equitable Access to Banking and Financial Services,” Biden’s manifesto calls on the Fed to get into the retail banking business and provide “affordable bank accounts” for “everyone.”

“One in four American households are either unbanked or underbanked, putting them at risk of losing money due to exorbitant fees or usurious interest rates,” it says. “Democrats will support and encourage Congressional efforts to guarantee affordable, transparent, trustworthy banking services for low- and middle-income families, including bank accounts and real-time payment systems through the Federal Reserve and easily accessible service locations, including postal banking.”

Even more dangerously, Biden and Bernie would add a third directive to the Fed’s current mandates of price stability and full employment – that of monitoring “racial equity” throughout the economy.

“The Federal Reserve should significantly elevate racial equity as part of its mandate by targeting not just the overall unemployment rate but disparate unemployment rate based on race,” the missive says. “To do so, language in the Federal Reserve Act should be amended to require the Fed chair, in his or her semiannual report, to report not just on macroeconomic conditions, but on the extent of racial employment and wage gaps, and what the central bank is doing to reduce them.”

According to the Wall Street Journal, “Don’t underestimate how this third mandate would influence the Fed and U.S. economy. To start, a racial-equity mandate would give the Fed an excuse to rarely if ever raise interest rates under any circumstance. This proposal would bake in a bias in favor of ultraloose monetary policy, with racial justice furnishing a formal excuse to overlook inflation risks.”

“The Biden monetary mandate also would open the door to regulatory mischief, which is the real prize for the progressive left,” the Journal said. “Under a diversity mandate, the Fed could require the banks it regulates to collect detailed data about the racial make-up of employees, and their pay, at companies applying for loans. That data could then form a basis for enforcement action against banks that didn’t do enough to reduce racial pay gaps via their lending decisions. This would be a back-door way to impose through regulatory pressure various wage and diversity rules that otherwise couldn’t pass Congress or survive the Supreme Court. Such a data trove would provide bottomless fodder for grandstanding politicians on Capitol Hill.”

Biden and Bernie also advocate “creating a public credit reporting agency to provide a non-discriminatory credit reporting alternative to the private agencies, and will require its use by all federal lending programs, including home lending and student loans.” In other words, a government agency will decide if you get credit or not.

This from the party that’s concerned about Trump politicizing the Fed.

You’ve been warned.

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George Yacik
INO.com Contributor - Fed & Interest Rates

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.