Even higher gas pump prices are coming if Jamie Raskin’s Wife gets her way on the Fed
Earlier this month, President Joe Biden nominated Sarah Bloom Raskin to serve as Vice-Chair of the Federal Reserve System’s Board of Governors. She is the wife of Rep. Jamie Raskin of Maryland. Her nomination requires Senate approval, where she faces opposition because of her ideological agenda.
By law, under the Federal Reserve Act, the monetary policy objectives of the Federal Reserve are required to “promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”[i] In short, the Fed is required by law to prioritize keeping inflation in check.
Instead of fighting inflation, Sarah Raskin wants to use the Fed’s power over banks to impose credit controls on industries she opposes. She would use the Fed’s regulatory power to discourage lending to traditional energy companies, although no legal authority exists for the Fed doing so.
Writing in the New York Times in May 2020, in an article “Why Is the Fed Spending So Much Money on a Dying Industry? It should not be directing money to further entrench the carbon economy….Oil, gas and coal companies are set or are seeking to receive billions in federal aid — including at least $3.9 billion from the Paycheck Protection Program and at least $1.9 billion in tax credits tucked into the CARES Act passed by Congress.”[ii]
So, while acknowledging that the “CARES Act” entitled energy firms to receive funds, apparently Raskin wanted to ignore the law because she thinks the companies were “a bad investment.”[iii]
The Wall Street Journal commented on the Raskin CARES Act position: “This showed colossally bad judgment. The crisis of the hour was Covid and a potential depression, not climate. Yet at that perilous moment, Ms. Raskin was urging the Fed to discriminate against an industry that employed hundreds of thousands of people. Had the Fed taken her advice, many more oil and gas producers would have gone bankrupt, and energy prices would be even higher today.”[iv]
An energy transition is already well underway in the U.S. without heavy-handed Federal Reserve credit controls. In 2020, CO2 emissions from energy consumption in the United States fell to the lowest level since 1983.[v] Since 2007, the electricity produced by coal has dropped by 61%.[vi]
Investment in the gas industry for fracking has made much of these CO2 reductions possible. Had the Federal Reserve already imposed Raskin’s credit control policies, the investment that facilitated a shift from coal that made these CO2 reductions possible would have been more difficult and have taken longer.
During an energy transition, using the Federal Reserve to impose capital controls as a form of government industrial policy comes with significant risks, disrupting energy markets and causing far higher prices than they are now.
The United States became a net oil exporter in 2020, the first time in seventy years. [vii] Prices could be driven up to crippling levels if reduced investment reversed this. And our country would be more dependent on countries such as Russia and Iran. Consider Germany’s current geopolitical predicament, as it phases out nuclear power, it has become more dependent on Russian natural gas.
Commenting on Raskin, Sen. Pat Toomey, ranking member of the Senate Banking Committee warned: “Sarah Bloom Raskin has specifically called for the Fed to pressure banks to choke off credit to traditional energy companies and to exclude those employers from any Fed emergency lending facilities. I have serious concerns that, if nominated, she would abuse the Fed’s narrow statutory mandates on monetary policy to have the central bank actively engaged in capital allocation. Such actions not only threaten both the Fed’s independence and effectiveness but would also weaken economic growth.”[viii]
Financial markets make risk assessments continually. Even while acknowledging a longer-term risk of “stranded” oil and gas assets, markets are far better at valuing energy assets than an ideologue government economist from Takoma Park. Americans already know how the Left’s “Defund the Police” policies worked out. They should not have to deal with Raskin’s “Defund Energy” ideology at the Federal Reserve.
[i] Section 2A of the Federal Reserve Act, 12 USC 225a.
[iii] P.L. 116-136