Biden faces big decision on Fed leadership
President Biden in the coming months will need to decide whether to reappoint Federal Reserve Chairman Jerome Powell during a pivotal time in the coronavirus recovery.
With Powell’s four-year term set to expire in February, Biden has given little indication about whether he’ll keep the Trump appointee, who enjoys broad bipartisan support, or go in a different direction with a pick of his own.
Biden has said almost nothing about the Fed since taking office beyond stressing his support for its independence, and his economic advisers have remained mum about the president’s plans.
But two other looming vacancies on the Fed board, along with an open spot inherited from former President Trump, will soon force Biden to decide what to do with a major opportunity to reshape leadership at the Fed.
Before Powell’s term expires in February, Biden will need to nominate his picks to succeed Fed Vice Chairman of Supervision Randal Quarles, whose term ends in October, and Fed Vice Chairman Richard Clarida, whose term runs out in January.
Biden is not expected to renominate either of the two Trump-appointed Republicans. Instead, he’s likely to nominate two Democrats.
But the complicated, musical chairs-like nature of staffing the Fed means deciding Powell’s future is a crucial, politically fraught first step.
Powell, a Republican who has led the central bank since 2018, is liked and trusted on both sides of the aisle, meaning it’s unlikely he would face serious obstacles if nominated for another term. He was confirmed in an 84-13 vote in January 2018 for his current role.
Key senators have also offered few clues about what they think Biden should do with Powell.
Senate Banking Committee Chairman Sherrod Brown (D-Ohio), who will oversee any Fed nomination in this Congress, declined to say Tuesday whether he would support another term for Powell.
Brown’s office said in a Tuesday statement only that he “will work with the Biden Administration to ensure our financial regulators not only reflect our nation’s diversity — but are also ready to stand up to Wall Street, address income inequality and systemic racism, and make our economy more just for workers.”
A spokesperson for Sen. Pat Toomey (R-Pa.), ranking member on the Banking Committee, declined to comment.
With the economy still fragile from the coronavirus recession and Washington roiled by polarization, renominating Powell would give Biden a chance to live up to his campaign promise of unity. But the president is facing pressure from the left to make his mark on the Fed with a new nominee, prompting some Fed veterans to come to Powell’s defense.
“What the Fed is trying to do right now is really hard. When you’re trying to do something really hard, you need a lot of smart people from a lot of different backgrounds,” said Claudia Sahm, a Fed research director and economist from 2007 to 2019.
“I think continuity and keeping politics out of this is particularly important when we’re in a moment of great economic uncertainty.”
Powell began at the Fed in 2012 after he was appointed to the board by former President Obama. He became chairman in 2018 after Trump chose him to replace Janet Yellen, whose first and only term as Fed chair expired in February 2018. Yellen is now Treasury secretary.
Since taking over the Fed, Powell has won praise from many liberals for formalizing the Fed’s new approach to its dual mandate, putting a much greater emphasis on maximizing employment after decades of policy driven by inflation fears. While the Fed had moved toward that goal under Powell’s predecessors — Ben Bernanke and Yellen — employment hawks credit Powell for keeping Fed officials united and markets mostly calm as it was cemented.
“He has been really skilled at bringing the committee into alignment, even as it’s taking this jump into different worlds,” said Sam Bell, founder of Employ America, a nonprofit that advocates for policies meant to maximize employment.
Powell’s close relationships with lawmakers in both parties were crucial to shaping the response to the onset of the coronavirus pandemic. His ardent support for monetary and fiscal stimulus during the depths of the recession endeared him to progressives who were worried about an insufficient stimulus effort.
“With his identity as a Republican and his skills working with Congress, I think he’s in a good spot to defend this new regime and this quest for full employment,” Bell said. “So part of me is thinking, ‘Do you really want to mess with that?’ ”
The answer for some on the left is an unequivocal “yes.”
Progressive groups have ramped up pressure on Biden to replace Powell, saying the Fed chief’s support for loose monetary policy and strong fiscal stimulus is a floor, not a ceiling for the central bank chief.
“He has been a part of moving the institution to a different sort of consensus on monetary policy, but … that is not something that only Powell could have done or can in the future maintain,” said Eleanor Eagan, a research assistant at the Revolving Door Project.
The Fed Up Campaign, a coalition of liberal advocacy groups, has not explicitly called for Powell’s replacement but has called on Biden to “challenge the Fed’s leadership” to focus more on narrowing racial economic disparities in a suggested road map for Biden’s monetary policy.
While Powell has expressed concern about the racial wealth gap, he’s argued that the Fed does not have the technical or legal ability to target slices of the population. Progressives counter that it’s possible with outside-the-box thinking.
“What policy tools the Fed decides to use is not just a technical choice, it can also be a policy choice that shows who’s interests the Fed sees as being legitimate,” Fed Up wrote. “To truly fulfill the dual mandate by equally pursuing maximum employment, the leadership of the Federal Reserve must embrace new policy tools that they have left by the wayside.”
Powell has also taken flack from progressives for what they consider insufficient steps to curb financial risks, particularly from climate change. Critics cite his support for efforts to loosen some bank regulations as a disqualifier and say Powell should do more to tackle climate change.
Under Powell, the Fed has created several committees tasked with assessing climate-related financial risks, joined an international network devoted to fighting climate change and said they would soon ask banks to consider how they would respond to certain financial shocks related to climate issues.
Those steps, inconceivable for the Fed a decade ago, have drawn considerable backlash from Republicans who’ve accused Powell of trying to hinder the fossil fuel industry. But liberals want Biden to tap someone who would go even further.
“It really is an exceptionally powerful institution that could be working much more actively to be involved in moving the economy away from what really are risky oil and gas assets,” Eagan said. “There’s a lot of work that needs to be on the Fed as an institution to do that which Powell has been pretty reluctant to do.”