Democrats are weighing Jay Powell’s support as Fed leadership option looms

Brad Sherman, a California Democrat in the House of Representatives, was secretly saying what many in his party believed when President Joe Biden called for Jay Powell to be reappointed for a second term as Federal Reserve Chairman.

“I went through two economic crises in Congress: 2008 and 2020. And 2020 was handled much better,” Sherman told the Financial Times. “Reassure people while we are dealing with it Corona virus disease And some level economic inflation good idea.”

Democrats, at the very least, are leaving the door open for Powell to stay in office for another four years when his current job ends in February. This comes as deliberations intensify within the Biden administration regarding key Federal Reserve appointments in the coming weeks.

Randall Quarles’ term as vice president of banking supervision is set to expire in October, and there is one vacancy on the Board of Governors. These are pieces of the puzzle that Biden and his economic team will have to solve. When asked by CNBC on Friday if she would recommend Powell to a second term, US Treasury Secretary Janet Yellen said she would have a “discussion” with Biden on the issue but was satisfied with the central bank’s performance.

I have a lot of respect for the Federal Reserve. It is important for them to make independent judgments about what is appropriate. I think, you know, the Fed did a good job,” she said.

The renewal of Federal Reserve positions has long been an important moment for US presidents. But traditionally, even central bank chiefs from parties opposed to the White House have won approval at least once. Ronald Reagan reappointed Paul Volcker, Bill Clinton renewed Alan Greenspan’s job twice, and Barack Obama tapped Ben Bernanke for another run during the financial crisis. It was Donald Trump who broke precedent when he chose to promote Powell, a Republican whom Obama brought to the Federal Reserve, to replace Janet Yellen as Fed chair when her term expired in early 2018.

Some Democrats – especially on the progressive side of the party – believe that Biden should do the same and make his own assertive mark on the leadership of the US central bank. But they struggled to find areas where Powell would get it wrong: He steered the Fed toward a balanced and very cautious response to the pandemic, setting out a new policy framework that promises to defer preemptive rate increases and pursue full employment more comprehensively. than in the past.

Moreover, he publicly endorsed a strong fiscal response to the coronavirus crisis in 2020, and showed more than usual sympathy to Fed chiefs about the impact of central bank policies on ordinary Americans. One area of ​​continued criticism of Powell from Democrats is that he is too lenient with banks.

“The Fed has rolled back important collateral, making it easier for the big banks to raise their stock prices and bolstering their already tremendous power in our economy,” said Sherrod Brown, the Democratic chair of the Senate Banking Committee. Hearing with Powell on Thursday. But Brown, a key voice on Capitol Hill, did not call for Powell’s replacement and voted to confirm it the first time.

Some Capitol Hill watchers say the dilemma for left-wing Democrats is whether a candidate to replace Powell can get confirmation, and be at least as pacifist as the current Fed chair, while not distracting Congress from his overriding priority — pushing the remainder of Biden to 4 trillion dollars. economic agenda.

“I don’t know there will be enough juice to fight over whether or not President Biden should re-nominate Powell or whether he should go elsewhere,” says Megan Pennington, a former Democratic aide in the Senate. Hamilton Place Strategies, a Washington consulting firm.

One potential deal between the Progressive Democrats and the White House could be to see Powell remain Fed chair while Lyle Brainard, the Fed’s more hawkish governor on financial regulation, takes over Quarles as vice chair of oversight.

For an open seat on the board, many Democrats are pushing for a person of color, adding racial diversity to the Fed’s top brass: Brown supports Lisa Cook, a professor at Michigan State University. Whether such an arrangement works, however, could depend on how Powell is judged over the coming months, as he navigates between a wave of inflation and the start of the tapering process as the Federal Reserve begins to slow the pace of asset purchases of $120 billion per month.

Many investors, economists and market strategists say it would be wise for Biden to offer Powell another term. “Whether you like politics or not, stability is what the markets are looking for,” said Padrick Garvey, regional head of research for the Americas at ING.

Roberto Burley, a former Federal Reserve employee and head of global policy research at Cornerstone Macro, said a Powell reappointment would be the “safest course of action.”

“Markets, already skeptical about the Fed’s adherence to the new framework, are likely to question the ability of a potential new chair to steer the committee in a direction consistent with the new framework, and the result is likely to be higher interest rates,” he said.

Sherman ignores Powell’s reprimand for regulatory reasons, saying in regards to “precautionary solvency,” all went well. “The only thing you can criticize is that the banks are making too much money — and between the anger that the banks are making too much money and worrying that they are going to close or need a bailout, I’ll accept the former,” he said.

As a member of the House of Representatives, Sherman will not have a vote on the chair of the Federal Reserve. He “doubts” that Powell will get a second term but “is not betting on it” and warns his colleagues of negative political repercussions in next year’s midterm elections if the reappointment fails.

The first thing on the progressive agenda is the election of Democrats. . . He said economic uncertainty is not a great way to achieve this.

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