The Fed chair has an army of Biden fans. Liberal groups have other dreams.May 11, 2021
The Biden administration’s top economic aides like him. Lawmakers on both sides of the aisle respect him. And investors lapping up the rewards of loose money seem to love him. Even a potential rival for his job has endorsed him.
Now the biggest force standing between Federal Reserve Chair Jerome Powell and a second term leading the central bank may be an activist left prepared to create a spectacle in the coming months before the critical decision by President Joe Biden.
Some progressive groups are mobilizing against Powell’s reappointment, calling on Biden to pick a more liberal candidate for the country’s most important economic policy job. The groups acknowledge that he has steered the Fed toward promoting “broad-based and inclusive” job gains, a historic shift for the central bank. But they have a litany of complaints: He hasn’t done enough to prepare banks to deal with the financial risks posed by climate change, he has eased regulations on the largest lenders, and he has fallen short on closing the racial wealth gap.
“Any of the plausible nominees would build on what is admirable in Powell’s record, and be a lot better on other issues,” said Jeff Hauser, director of the Revolving Door Project, which scrutinizes executive branch appointments.
The Fed appointment will be the most consequential personnel decision left for Biden in his first term. Winning the confidence of investors and businesses will drive economic decisions into the 2022 midterm elections. With razor-thin majorities in Congress, the Fed also could be the lone force providing government support for the economy in the second half of Biden’s term if he loses control of either chamber of Congress.
Powell gained investors’ confidence by playing a pivotal role in efforts to pull the economy out of one of its worst recessions, keeping interest rates near zero and pledging trillions of dollars to keep credit flowing.
Senior White House officials believe Powell has done a good job of aiding the economy and supporting the markets. But they say Biden is not yet close to settling on another term for the Republican, a decision that could come by late summer or early fall. Powell’s term as chair doesn’t end until early February, but decisions on Fed leadership are typically made well in advance.
Pressure from a newly empowered left could make the decision over whether to keep the Fed leader — who was elevated to lead the central bank by then-President Donald Trump — a contentious one.
Senior officials know they will face a challenge when it comes to Powell, a white man with a background in private equity — a corner of Wall Street that has come under fierce attack from the left — as they are met with demands to pick a more diverse candidate.
But the Fed chief, who joined the central bank’s board of governors in 2012 after being nominated by then-President Barack Obama, isn’t without progressive support. He achieved consensus at the central bank for a new framework in which the Fed has vowed to vigorously pursue full employment rather than prematurely slow economic activity with higher interest rates in anticipation of inflation, a move that could spread greater prosperity to marginalized communities. That has earned him some prominent allies.
“My hope would be that he would be reappointed,” said William Spriggs, a professor at Howard University and chief economist at the AFL-CIO, a significant statement of support since Spriggs himself is often touted on the left as a potential pick to head the central bank.
“I don’t think people should take lightly” how significant the Fed’s pro-worker shift has been under Powell, said Spriggs, adding that “we need a little stability at the Fed after having gone through four years of Trump.”
The message from groups like the Action Center for Race and the Economy, though, is that the Fed chair’s actions have not been nearly enough. They point to the central bank’s emergency program for states and cities last year, which ultimately gave out loans to only two borrowers — Illinois and New York City’s transit system. They argue that’s because the Fed didn’t make the terms as generous as a separate program for corporate borrowers.
The group also cites Powell’s resistance to taking more responsibility for combating the wealth disparity between white people and other racial groups. Just last week, he reiterated that he didn’t think it made sense for Congress to make that part of the Fed’s official mandate.
“From a racial justice perspective, Powell has just been terrible,” said Saqib Bhatti, co-executive director of ACRE.
The Fed declined to comment for this story.
An influential coalition of labor and community groups known as the Fed Up Campaign isn’t yet formally calling for Powell to be replaced, but they laid out a blueprint by which he should be judged. It calls on the Fed to target the racial unemployment gap and to expand the types of borrowers the central bank helps during crises.
Fed Up Campaign Director Benjamin Dulchin said Powell “has done some good things” but “there is much more that can and should be done if the institution is pushed to stretch itself.”
The central bank head has also been slammed for being slow to make a priority of climate change in its oversight of banks. Environmental groups have blasted him over the Fed’s particular support for oil and gas companies as it moved to make sure that corporations in all industries were able to borrow cheaply during the pandemic shutdowns.
Since progressives are particularly upset about bank deregulation under Trump, one possible route would be for the White House to replace the Fed’s point person on oversight, Randal Quarles, with a more aggressive regulator, while keeping Powell in his role.
But critiques of Powell’s regulatory record could also provide an opening for fellow Fed board member Lael Brainard, who has dissented nearly two dozen times against such moves.
Brainard is hardly a progressive darling; she served in the Clinton White House and the Obama Treasury Department, where she pursued some trade policies that angered the left.
But even activists who might not openly push for Brainard’s nomination as Fed chair prefer her to Powell, given that she has been in lockstep with him on rate policy and stronger, in their view, on regulatory issues.
“She did better at the Fed than she did at Treasury,” Hauser said.
Other potential selections like Sarah Bloom Raskin, a former Fed governor and onetime deputy Treasury secretary, or Spriggs are more likely to garner enthusiasm from the left. Another name that has been mentioned is Raphael Bostic, a Black economist who heads the Atlanta Fed.
One senior Democrat close to the White House said Powell should not be underestimated.
“I think in January, when they were putting things together, they thought they would replace Powell. I don’t really think they think that now,” the Democrat said. “And I can’t imagine that once they get in the room together that Biden is going to be the first person in history who does not immediately like Jay Powell. Because it’s impossible not to like him. Biden is going to have a very hard time firing him.”
If the economy continues to pick up speed and markets keep rising — with inflation in check — dumping a popular Fed chair, even one nominated by a GOP president, will be especially tough to do.
Powell is a reassuring presence on Wall Street for his continued easy money policies and refusal to even suggest the Fed might start to pull back on efforts to flood the system with cash in the wake of the Covid-19 pandemic.
Even stories suggesting Powell could be on his way out could upset markets. A recent survey of investors by CNBC found that 76 percent believe Biden will re-nominate the Fed chair.
Top officials are noncommittal in public about Powell’s future. At a recent POLITICO virtual event, Jared Bernstein, a member of Biden’s Council of Economic Advisers, would not engage on the question or endorse Powell.
“Neither yes nor no at this point,” he said. He added that it’s “a process we have to go through before we even start talking about it.”
Before the election, however, Bernstein had enthusiastically praised Powell: “I’m hard-pressed to find all the positive adjectives I can think of for Jay Powell’s job,” he said during an interview in September.
When the call is made, it will come from the highest level in the West Wing, the president himself along with chief of staff Ron Klain. Senior economic advisers including Treasury Secretary (and former Fed Chair) Janet Yellen, National Economic Council Director Brian Deese, Council of Economic Advisers Chair Cecilia Rouse and stimulus package czar Gene Sperling are all also likely to weigh in on the decision.
Central to the decision is whether Powell’s role as cheerleader for full employment is better served with him in the job, given his extensive work throughout his tenure to build relationships and credibility on both sides of the aisle.
“There’s always the possibility that you get the person who’s the absolute dream from the progressive standpoint, but then you end up with more of a backlash” than the Fed’s gotten under Powell, said Kathryn Judge, a professor at Columbia Law School. “There’s always the danger that in winning the battle, you lose the war.”