Jerome Powell’s Future at the Fed (Issue IV)
Regardless of the direction financial markets are heading in, or what the state of the economy is, the name of the Chair of the Federal Reserve always seems to be on the lips of key players on the national stage. From members of Congress, to institutional and retail investors, to commentators and journalists, concerned parties can hardly ever stop speculating about the decisions and fate of America’s top central banker. Never has this been more true than in the last three years, as Jerome Powell and his team at the Fed have had to tackle a broad range of challenges, including the response to Covid-19 as well as resulting supply-chain breakdowns and concerns about inflation. Overall, both Washington and Wall Street have been generally supportive of Powell’s response to these unprecedented crises. On Monday, November 22, President Biden affirmed his support for Powell, renominating him for a second term at the helm of the Federal Reserve. Biden made this decision over the objections of key progressive members of his party, who had urged him to nominate a Fed chair whose policies aligned more with their interests.
Biden’s decision, though sure to anger those members, reflects widespread approval of Powell’s performance in the role, and a desire not to rock the boat at a delicate time for the US economy.
When the Covid-19 pandemic hit, Powell’s Fed took aggressive measures to bolster the economy, acting quickly to ensure the availability of credit. These measures included setting short-term interest rates to zero, and bringing back its quantitative easing program to lower long-term rates. This decisive action was well-received by both the business and political communities. According to reporting by the New York Times, Powell’s actions earned him respect within the White House, with several key Biden staffers lobbying for his reappointment. Powell’s supporters within the administration also reportedly included his predecessor as Fed chair, treasury secretary Janet Yellen (Smialek and Tankersley 2021). Bloomberg News reported in August that “Yellen has told senior White House advisers that she supports reappointing Jerome Powell as Federal Reserve chair...a move that greatly increases his chance for a second term,” (Mohsin and Jacobs 2021).
Biden’s inclination towards reappointing Powell may also stem from a desire to reassure moderate Democrats and independent voters about the direction of his administration’s economic policy. Over the past several months, the administration has embarked on a spending spree, beginning with a nearly two trillion dollar economic stimulus package designed to blunt the effects of the coronavirus crisis. Even now, the President remains locked in a battle with moderate House and Senate Democrats about a key piece of his economic agenda, a whopping 1.75 trillion dollar “human infrastructure” bill that focuses on social policy and climate change. The proposed spending increases come even despite a recent Gallup poll showing that the majority of Americans oppose the federal government playing a larger role in their lives (Jones 2021). In reappointing Powell, Biden may seek to reassure independent voters that he has not completely abandoned the fiscal moderation that many had hoped to see from his administration. Though the Fed Chair’s position is on its face an apolitical one, it is at times difficult to separate monetary policy decisions from the political situation of the day. In a time of what many see as runaway spending, Biden may see renewing the tenure of a well-liked Republican like Powell as a way to provide that reassurance.
On the other hand, President Biden had been facing pressure to move on from Powell from the left wing of his party. Over the past several months, progressives like Rep. Alexandria Ocasio-Cortez and Sen. Elizabeth Warren, Democrats of New York and Massachusetts, respectively, voiced their opposition to Powell’s renomination. At the heart of this opposition was concern about Powell’s exercise of his authority as a key regulator of America’s commercial banks. According to the New York Times reporting by Smialek and Tankersley, progressives had long raised concerns about the Fed’s decision to “[make] bank stress tests more transparent and enable big banks to become more intertwined with venture capital,” (Smialek and Tankersley 2021). Warren further highlighted this deregulatory approach in comments made during a Senate hearing in September, where she said that Powell’s renomination would mean that the nation would be “gambling that, for the next five years, a Republican majority at the Federal Reserve, with a Republican chair who has regularly voted to deregulate Wall Street, won’t drive this economy over a financial cliff again,” (Smialek and Tankersley 2021). The progressives’ concerns also extend to the Federal Reserve’s role in climate policy. According to the Wall Street Journal, “One group [of progressives]...wants Mr. Powell to be replaced so that the Fed will more explicitly pursue progressive priorities on...climate change,” (Timiraos 2021). A statement issued by Democrats including Ocasio-Cortez in August reiterated this concern, asking the president to consider appointing a Fed chair who is more committed to “eliminating climate risk and advancing racial and economic justice,” (Ocasio-Cortez et al. 2021).
Pushback from progressive Democrats aside, Powell has enjoyed broad support from many on both sides of the aisle in Washington.
Importantly, the Chair received key endorsements from the authors of the very financial regulation that Warren and others have accused him of working to dismantle. Former Senator Chris Dodd and Rep. Barney Frank, authors of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act, backed Powell’s renomination in a September op-ed for The Hill. In their piece, both men argued that “the national interest will be best served by President Biden reappointing Jerome Powell to chair the Federal Reserve System.” The pair go on to argue that “The most important issue facing us today is the enactment of President Biden’s comprehensive program responding not just to the ravages of COVID-19 but to the underlying social and economic problems that have exacerbated its effects...Reappointing Mr. Powell will provide strong support for this essential step,” (Dodd and Frank 2021). The ringing endorsement from the two former legislators illustrates a dynamic that likely helped propel Chairman Powell towards renomination. Enjoying support from prominent Democrats and Republicans, and having earned admiration from the White House and business community alike, it’s no surprise that the markets and the American people can expect to see another four years of Jerome Powell helming the Federal Reserve.
References
Dodd, Chris, and Barney Frank. “Dodd and Frank Call on Biden to Renominate Powell to Chair the Fed.” TheHill, 13 Sept. 2021, thehill.com/opinion/finance/572012-dodd-and-frank-call-on-biden-to-renominate-powell-to-chair-the-fed. Accessed 28 Oct. 2021.
Jones, Jeffrey M., and Gallup Inc. “Americans Revert to Favoring Reduced Government Role.” Gallup.com, 14 Oct. 2021, news.gallup.com/poll/355838/americans-revert-favoring-reduced-government-role.aspx. Accessed 28 Oct. 2021.
Mohsin, Saleha, and Jennifer Jacobs. “Yellen Backs Powell Reappointment, Boosting Second-Term Odds.” Bloomberg.com, 21 Aug. 2021, www.bloomberg.com/news/articles/2021-08-21/yellen-said-to-back-jerome-powell-reappointment-for-fed-chair.
Smialek, Jeanna, and Jim Tankersley. “Federal Reserve Chair Jerome Powell Faces Reappointment amid Tumult.” The New York Times, 5 Oct. 2021, www.nytimes.com/2021/10/05/business/economy/federal-reserve-jerome-powell-warren.html.
“STATEMENT: Reps. AOC, Tlaib, Pressley, Jones & García Urge Biden to Replace Powell as Federal Reserve Chair.” Ocasiocortezforms.house.gov, ocasiocortezforms.house.gov/news/email/show.aspx?ID=MDUGONUR3FA2A. Accessed 28 Oct. 2021.
Timiraos, Nick. “Elizabeth Warren Says She Will Vote against Second Term for Fed’s Jerome Powell.” Wall Street Journal, 28 Sept. 2021, www.wsj.com/articles/elizabeth-warren-says-she-will-vote-against-second-term-for-feds-jerome-powell-11632852098. Accessed 28 Oct. 2021.