Federal Reserve Chairman Jerome Powell has won support from both Republicans and Democrats for reappointment by President Joe Biden because of his defense of the central bank’s independence during the Trump years and for his strong support for the pursuit of full employment.
Powell’s term is ending in February, and the White House is working to decide whether to keep him for another four-year term or select another head, presumably someone more liberal. The prospect of keeping Powell, a Republican who was appointed by former President Donald Trump, has grown more popular among some Democrats who have been pleased with his performance running the central bank.
Sen. Jon Tester has said in various interviews that he hopes Powell keeps his job and has pushed back on liberals who think that the Fed should choose someone else in order to prioritize climate change initiatives. The Montana Democrat has argued that Powell has proven he can keep the Fed insulated from partisan politics and said he fears that replacing him with someone more appealing to the Left could jeopardize the central bank’s impartiality.
Sen. Ben Cardin, a Maryland Democrat, has also said he is not looking for a change in Fed leadership and that Powell has earned his respect for his work helming the central bank. Cardin has said he will vote to confirm Powell if he is renominated.
Another indication that Powell could be sticking around is that few Democrats in the House and few in the Senate, which will vote to confirm him, have publicly called for him to be replaced.
The White House has been tight-lipped about its plans for the Federal Reserve. Fed watchers have been eagerly awaiting any news, but there have been few signs about the chairman’s prospects for future employment.
When the topic of Powell’s renomination and the possible timing of Biden’s decision were raised to a White House official, the official said that the president would be working with his senior economic team to make the decision in a “timely” manner.
“The president will appoint the candidates who he thinks will be the most effective in implementing monetary policy,” the official told the Washington Examiner, referring not only to the nomination of the chairman, but also the Fed’s board of governors.
Many senators have simply been silent on the topic — seemingly waiting for the White House to make the first move and not seeking to exert any pressure to push Biden one way or the other.
Sen. Bob Menendez, a Democrat who has served as a New Jersey senator since 2006 and voted to approve Powell’s nomination previously, is one lawmaker who is waiting for Biden to decide what he wants to do before taking a position on the matter.
Despite his desire to wait to see who is chosen, someone with knowledge of Menendez’s plans told the Washington Examiner that the senator was glad to see Powell insulate the Federal Reserve from partisan influence when Trump was still in office.
Powell won plaudits from some Democrats for the way he handled himself during Trump’s tenure. Trump broke with presidential norms and frequently bashed his appointee in an attempt to pressure the Fed to ease monetary policy. The former president had wanted the central bank to slash interest rates to negative levels while the Fed, which is intended to be entirely devoid of political rancor, thought differently.
In 2019, amid tension over trade tariffs with China that drove stock prices down, Trump hit at Powell: “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”
The tweet referring to Powell as an “enemy” came after the chairman’s much-anticipated annual speech in Jackson Hole, Wyoming, where he drew a line in the sand between the central bank’s authority and the Trump administration’s authority.
Some of Powell’s appeal to Democrats might have come because he “didn’t get bullied by Trump” during the previous administration, according to Desmond Lachman, a senior fellow at the American Enterprise Institute and a former deputy director of the International Monetary Fund’s Policy Development and Review Department.
Lachman told the Washington Examiner that he thinks Powell’s insistence on keeping the Fed sequestered from the political realm bodes well with lawmakers.
Another aspect that makes Powell appealing to some on the Left, and to the dismay of some Republicans, is the Fed’s shift in focus toward achieving maximum employment, which Democrats believe helps poorer people and minorities.
During the pandemic, the Fed slashed interest rates to near zero and embarked upon a monthly asset purchasing program, which critics say has contributed to inflation but admirers believe is best for the country’s economic health moving forward. The loose stance also might appeal to Biden, according to David Sacco, a practitioner in residence at the University of New Haven’s finance department.
“Every president wants a Fed chairman who is going to be accommodative and erring on the side of easing rather than tightening because it bodes well for their reelection to have an economy that’s growing, even at the risk of inflation,” Sacco said.
Sacco said that Powell’s ability to lead during the coronavirus pandemic bodes well for members of both parties wanting Biden to keep him on the job.
But some Democrats in the House who are on the left fringes of the party have called for new blood in the central bank.
Five liberal lawmakers, including firebrand Rep. Alexandria Ocasio-Cortez of New York, put out a statement last month calling for Powell to be replaced and for the administration to “re-imagine a Federal Reserve focused on eliminating climate risk and advancing racial and economic justice.”
“Under his leadership, the Federal Reserve has taken very little action to mitigate the risk climate change poses to our financial system,” they said, adding that they were concerned about moves the Fed has taken to ease financial regulation.
While its numbers are small, the liberal wing in the House has had outsize influence due to its popularity on social media and in the press.
Joel Griffith, a research fellow at the conservative Heritage Foundation, is not a fan of how the Fed has been operating during the pandemic, arguing that it has exceeded the bounds of its mandate. He told the Washington Examiner, however, that Powell appears to have strong support for renomination from the GOP caucus and many Democrats — although he said figures such as Ocasio-Cortez have extensive influence on the administration, given the party’s leftward shift.
Powell doesn’t hold complete support among Republicans. Pennsylvania Sen. Pat Toomey, the ranking member of the Banking Committee, has expressed frustration with the Fed under Powell. Toomey contends that the central bank has exceeded its mandate by wading into issues such as global warming and racial justice.
Rep. Kevin Brady, the top Republican on the Ways and Means Committee, told the Washington Examiner that the Fed “helped create” the inflationary problems the country is grappling with now.
“I’ve been very disappointed in Chair Powell this year,” the Texas lawmaker said. “He and the Fed dismissed both the labor shortage and then the real dynamics surrounding inflation for far too long — they’re just finally catching up with it.”
The leading candidate for nominee if Biden does decide to replace Powell is Lael Brainard, the sole member of the Federal Reserve Board of Governors appointed by a Democrat. Her appeal to the progressive wing of the Democratic Party stems from her opposition to moves to ease financial regulation.
Sen. Elizabeth Warren, who voted against Powell’s confirmation the first time around, in a September hearing called him a “dangerous man” for his record on regulating banks and said she would oppose his renomination. The Massachusetts Democrat had praised Brainard in the past.
A more likely choice that the Biden administration may make is to place Brainard as the Fed’s vice chairwoman for supervision, a position that was vacated in October when Vice Chairman Randy Quarles’s term ended. Quarles also announced that he would resign from the Fed’s Board of Governors at the end of the year, handing the president another vacancy to fill.
That role would give her considerable power in supervising Wall Street’s big banks. It would also be seen as a give to the more liberal Democrats who may not be supportive of Powell staying on if Biden renominates him.
Powell and Brainard recently met with Biden, separately, at the White House, presumably to discuss leadership at the central bank.
Another major factor to consider in Biden’s decision is that Treasury Secretary Janet Yellen, who was replaced by Powell, has reportedly expressed her backing of his nomination to the president’s top economic aides.
At the end of the day, most forecasters see Powell as likely to keep his job given the multitude of factors at play, including the fact that it is a politically safe bet.
“They know that they could create for themselves problems in replacing him,” Lachman said. “And I think that there would have to be quite a groundswell of support in the Democratic Party to replace him, and I don’t get that impression.”
