Washington Insider-- Tuesday

Politics and the Fed's Focus on Climate

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Biden Taps Bonnie For Key USDA Post

President Joe Biden plans to USDA senior climate adviser Robert Bonnie to be undersecretary for farm production and conservation, putting him in a key role for guiding USDA's climate efforts relative to production agriculture.

USDA Secretary Tom Vilsack called Bonnie "one of the nation's foremost authorities and leaders on working lands approaches to conservation and incentive-based climate and conservation practices for farmers, ranchers, foresters and landowners." Vilsack said that under Bonnie, agriculture "will see renewed focus on building and maintaining markets at home and abroad and preparing our food and agricultural community to lead the world in climate-smart agricultural practices."

Bonnie was undersecretary for natural resources and environment and senior environment and climate at USDA during the Obama administration. He currently is deputy chief of staff for policy and senior climate adviser.

Bonnie has been a major advocate for creating a carbon bank at USDA funding to pay agricultural landowners a fixed price per ton of carbon emissions they reduce by using climate-smart practices.

If confirmed by the Senate to the role, that would put him over the Farm Service Agency and Natural Resources Conservation Service which serve as agencies that directly interact with farmers relative to U.S. farm program participation.

House Republicans Unveil Climate Measures

House Republicans Friday unveiled their own slate of climate measures to counter Democratic proposals as Biden has made combating global warming a top priority of his administration. The Agriculture Committee minority offered five bills that aim to encourage private-sector partnerships in conservation and to help farmers protect the health of soil, among other initiatives.

Republican members on the House Natural Resources Committee proposed another measure aimed at reducing America's reliance on imported critical minerals.

"We're no longer debating whether or not climate change is real," House Agriculture Committee Ranking Member Glenn "GT" Thompson, R-Pa., said in an interview. "We're simply debating the best way to address it."

Thompson is also calling for the panel to hold hearings on USDA's farm bill implementation relative to climate goals that were in the 2018 Farm Bill.

Washington Insider: Politics and the Fed's Focus on Climate

The Washington Post is reporting that criticism of the Federal Reserve is growing “as it wades into climate and equity issues.” While tensions are not new for the institution, the source is now different, the Post says. After years of criticism from the Trump administration, it now faces warnings of politicization from Republican lawmakers.

As the Fed has taken a more expansive view of how it could work toward full employment, stable inflation and financial stability -- the loosely defined tasks Congress handed it -- conservative economists and lawmakers have complained that it risks going too far.

One of the most prominent critics is Senator Patrick Toomey, R-Pa., and a member of the Senate Banking Committee.

Such complaints don't carry much immediate threat, with Democrats in charge of Congress and the White House. But the mere accusation that the Fed is bowing to Democrats is a striking inflection point for a central bank that has often lived in America's imagination as a friend of bankers and free-market enthusiasts. The timing is also surprising since Republicans lead the institution.

There's a reason for the shift, central bank watchers say: The Fed is trying to figure out how to do its job in a changing economy. "It's not so much a give in to political pressure as it is to economic reality," Steven Kelly, a researcher at Yale's Program on Financial Stability, said. That is particularly true when it comes to the focus on labor market equity, he said.

The Fed is in charge of guiding the economy by setting the price of money. It moves interest rates to boost growth during bad times or to prevent painful overheating during good ones. Its national and regional policymakers -- 18 at present -- have been appointed by the president or by business and community leaders and do their jobs independent of the White House and with only arms-length oversight from Congress.

Fed officials have guarded their independence fiercely and they generally refuse to weigh in on heated political debates. But they have occasionally made exceptions.

Their opinions have at times been welcome to Republicans -- but that started to change after the 2007 to 2009 financial crisis, as Republicans sometimes accused former Fed Chair Alan Greenspan's successors of being political. When Janet Yellen, the Fed chair from 2014 to 2018 and now the Treasury secretary, talked about skyrocketing inequality, Republican lawmakers complained.

In the years since, the Fed has become more emboldened to discuss issues that have an economic impact, even when they fall into areas of partisan disagreement. And Powell, who was appointed to the Fed by President Barack Obama but elevated to chair by Trump ushered in a new policy framework last year. It clarified that the Fed saw its full employment target as "a broad-based and inclusive goal." Chairman Powell said last week that the tweak was a nod to concerns about economic inequality at a time when low inflation rates had given the Fed leeway to foster a hotter job market that pulled more people in and pushed wages higher.

And when the pandemic spurred a financial meltdown last March and April, the Fed introduced programs to keep credit flowing not just to Wall Street but also to Main Street, including state and local governments. In the subsequent months, Powell gently but firmly pushed for more congressional spending to shore up the economy.

The Fed's emergency efforts were initially welcomed by both parties but ended in blowback the post says. In fact, Sen. Toomey held up stimulus negotiations in December 2020 to insert language that might have -- in its original format -- prevented the Fed from setting up programs that could help business or municipal borrowers. His office said the wording, which was eventually watered down, would protect the Fed from becoming a tool for Democrats.

But Toomey has continued to raise concerns that the Fed is on the brink of losing its neutrality. "The Federal Reserve's independence and careful adherence to nonpartisanship has allowed it to avoid being seen as a politicized body," he wrote. "The Federal Reserve may pursue mission creep or welcome itself to political capture,” he continued. “But such activities are inconsistent with its statutory responsibilities."

But Fed officials say the central bank is being pragmatic, not political. Chairman Powell said last week that the Fed sees such issues “through the lens of our existing mandates” -- racial, gender and other disparities in economic outcomes "hold the economy back," for example.

Still, the Fed knows it's in fraught territory. When Fed officials talk about inequality, they often discuss opportunity -- a framing with more bipartisan backing. There is a risk if the Fed is seen as a "quote unquote Democratic institution," said Peter Conti-Brown, a Fed historian at the University of Pennsylvania.

"The Fed always needs political support to do its job well," said Sarah Binder, a political scientist at George Washington University who studies the Fed's politics. And even now, some Democrats say the central bank could go further. Rep. Rashida Talib, D-Mich., has pushed the Fed to do more to get cheaper credit to states and localities, for instance.

"I have a lot of respect for Chairman Powell," said Rep. Andy Barr, R-Ky., who has at times worried about the Fed's climate push. Still, Barr said, the regional banks risked "overstepping" by getting specific about social issues, inconsistent with the Fed's long history of jealously guarding its independence.

So, we will see. The real test of the Fed's policies likely will be in future responses to inflation, if such trends develop. So far, the Fed has been quite transparent about its intentions in such cases, but actually sorting out the temporary from the dangerous can be extremely difficult and should be watched closely by producers as the economy bounces back from the COVID's destruction, Washington Insider believes.

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