Renames Powell

Biden renames Powell to lead Fed, risking the left’s wrath

Jerome Powell — a Republican and a Trump appointee — is expected to easily win confirmation with bipartisan backing.

By VICTORIA GUIDA

President Joe Biden said Monday he will reappoint Federal Reserve Chair Jerome Powell as head of the U.S. central bank, opting for continuity in the government’s most powerful economic post as the specter of rising inflation looms in an election year.

Powell — a Republican and a Trump appointee — is expected to win confirmation with bipartisan backing, driven by his record in heading off a financial crisis at the onset of the pandemic and steering the economy through the crippling recession that followed. But he’ll face intense scrutiny from some Democrats such as Sen. Elizabeth Warren and Rep. Alexandria Ocasio-Cortez for overseeing a rollback in Wall Street rules, an issue that has sharply divided progressives over whether he deserves a second term, and over a trading scandal that forced two top Fed officials to resign.

The decision for Fed chair came down to Powell and Fed Governor Lael Brainard, a Democrat who was supported by many progressives. The White House announced it will nominate Brainard as vice chair of the board, the No. 2 position at the central bank.

"I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before," Biden said in a statement. "Together, they also share my deep belief that urgent action is needed to address the economic risks posed by climate change, and stay ahead of emerging risks in our financial system.”

Biden’s decision to stick with Powell caps a tumultuous four-year term for the Fed chief marked by relentless public attacks by then-President Donald Trump, the once-in-a-century pandemic that forced much of the country to shut down, and the emergence of new, lightning-rod issues for the Fed such as climate change, income inequality and diversity.

Powell was tapped for a second term despite a furious, last-minute lobbying push by progressives to topple him over the trading scandals at the central bank, a controversy that he moved to contain by overhauling the Fed’s conflict-of-interest rules.

The president's decision restores a decades-old tradition where central bank heads are retained by presidents regardless of party to reassure financial markets and underscore the Fed's independence from partisan politics. That practice was broken by Trump when he dumped Janet Yellen in 2018 for Powell, who had been appointed to the Fed board six years earlier by President Barack Obama.

Powell's term as chair does not end until February, but presidents usually pick their central bank chiefs well in advance to give markets time to absorb the news — and to allow plenty of room for the confirmation proceedings to play out in the Senate.

Even as he goes through that process, Powell, 68, will be dealing with crucial policy questions following the Fed’s decision to begin pulling back some of its extraordinary support for the economy. Surging food and energy prices coupled with soaring stocks and home values have sparked fears about inflation, heightening the focus on how the Fed might respond.

Winding down the $120 billion monthly purchases of mortgage-backed securities and Treasuries is the first step toward a more significant event that many expect in 2022 — raising short-term interest rates — a step the Fed might take in the face of both elevated inflation due to supply chain disruptions and a strengthening labor market. Still, the Fed wants to ensure that its actions won’t slow the recovery as millions of Americans remain unemployed, some of whom aren’t actively looking for work because of child care responsibilities and other pandemic-linked reasons.

Powell will face pressure from fellow Fed officials, some of whom believe the central bank should more aggressively strive to choke off accelerating inflation.

“We don't think it's time yet to raise interest rates,” he told reporters recently. “There is still ground to cover to reach maximum employment both in terms of employment and in terms of participation.”

The economy’s predicament is just one of a wide range of circumstances Powell has confronted. Job growth and wages continued to strengthen early on in his tenure, leading the Fed to remove some of the remnants of its emergency support for the economy that were put in place after the 2008 financial crisis and to begin hiking interest rates. That incensed Trump, who then spent more than a year openly berating his new Fed chief on Twitter and in interviews for not doing enough to turbocharge the economy. He once mused on Twitter whether Powell posed more of a threat to the country than did Chinese President Xi Jinping.

Powell steadfastly ignored the barbs — but after witnessing market turmoil in December 2018, the Fed hit the pause button on further rate increases and eventually stopped pulling cash out of the financial system.

In 2020, when unemployment had reached its lowest level since the 1960s, the pandemic struck, leading the central bank to pump trillions of dollars into debt markets to head off a massive credit freeze that threatened to grind the economy to a halt. The efforts lowered borrowing costs across the board, though some Democrats have decried the implementation of the Fed’s emergency programs for businesses, states and cities for enriching investors more than ordinary Americans.

Powell has had a much more hands-off relationship with Biden, who never publicly criticized the Fed and barely had any personal contact with the chair.

Yet the central bank’s concerns now go far beyond monetary policy, stretching into climate change and income inequality, which has stoked conflict with some Democrats.

The Fed leader has faced strident opposition from Ocasio-Cortez and other high-profile lawmakers on the left for supporting deregulation under Trump as well as for not being more aggressive in pushing banks to prepare for the risks posed by climate change.

But he also garnered praise from progressives for introducing a sweeping new policy of keeping interest rates at rockbottom levels for as long as possible to benefit lower-income workers even amid signs of inflation, a historic shift that was long at the top of the wish list for liberal advocates. Prominent economists like Bill Spriggs, a Howard University professor who is also chief economist at the AFL-CIO, said keeping Powell is key to ensuring that new approach for the Fed is long-lasting.

The Fed has taken some public steps on climate change over the past year. In a report last year, the central bank formally named the issue as a potential threat to the stability of the financial system. It has also now joined a global network of central banks collaborating on how to approach the problem and formed two internal committees dedicated to the topic.

Still, some activists say the Fed is not moving fast enough, urging the central bank to slow the flow of money to the fossil fuel industry. Despite the outcry from climate activists, Powell has strong relationships with members of Congress on both sides of the aisle, which should help him easily clear the 50-vote threshold.

More recently, Powell’s leadership on ethics faced criticism after revelations that Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren had actively traded in stocks and real estate assets while the central bank was engaged in an extensive rescue of financial markets. That led both men to resign.

The saga spilled out into broader scrutiny of financial activity by Fed officials, including Vice Chair Richard Clarida and Powell himself.

Clarida moved between $1 million and $5 million out of a bond fund into stock funds in February 2020, just a day before Powell put out a statement signaling that the central bank might take action to cushion the economy at the onset of the pandemic. The Fed has said Clarida’s move was pre-planned.

For his part, Powell sold between $1 million and $5 million in a broad index fund in October 2020, leading to questions about when it’s appropriate for the Fed chair to engage in any such activity at all.

Within weeks of the resignation of Kaplan and Rosengren, the Fed announced it will ban top officials from trading in individual stocks and bonds, as well as prohibit them from active trading. Under the new policy, central bank policymakers and top staff will have to give 45 days’ notice and obtain prior approval from internal ethics staff for all purchases and sales. They will also have to hold all investments for at least one year.