Analysis: Fed's Powell set table for Biden economy, but will he stay for
dessert?
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[February 22, 2021] By
Howard Schneider
WASHINGTON (Reuters) - Over the past year
Federal Reserve Chair Jerome Powell has engineered the largest economic
rescue in U.S. history, thrown a controversial lifeline to companies
hard hit by the coronavirus pandemic and steered a sweeping
labor-friendly revamp of monetary policy that any presidential
administration would welcome.
Is it enough to earn the 68-year-old former investment banker four more
years as the head of the U.S. central bank?That question will get
increased attention during this, the final year of Powell's term, and
the conversation may start as early as this week when the Fed chief
delivers his semi-annual update on the economy in two hearings before
Congress.
The testimony before the Senate Banking Committee on Tuesday and House
of Representatives Financial Services Committee on Wednesday will be
Powell's first since President Joe Biden and his fellow Democrats took
control of the White House and Capitol Hill.
While the body of work Powell can show Biden on monetary policy is
extensive - so much so that there'd seem little reason to replace him
when his term expires next February - he may face scrutiny over the
Fed's moves to relax regulations on financial institutions.
Those steps were often opposed by the left flank of the Democratic Party
as well as Fed Governor Lael Brainard, a 59-year-old economist who is
seen as the most likely person to replace Powell if Biden decides to put
out a "Help Wanted" sign.
Brainard is prominent in Democratic policy circles and has played a key
role in shaping Fed policy since she was appointed to the U.S. central
bank in 2014 after serving in the Obama administration's Treasury
Department.
Senators Elizabeth Warren and Bernie Sanders are among the progressives
who opposed Powell's appointment as Fed chief in 2018, as did
then-Senator Kamala Harris, who is now Biden's vice president. The
hearing on Tuesday before the Senate Banking Committee, of which Warren
is a member, may provide a gauge of how deep that opposition still runs.
"Is there anything else this White House could, if it was inclined to,
ask of the Fed? Not much," Alan Blinder, a former Fed vice chair who is
now a Princeton University professor, said of a central bank that is
locked firmly into a pledge to get the economy back to full employment
as fast as possible. That's also the Biden administration's top economic
priority.
"Biden is going to be quite happy with the performance of the Fed chair.
The market is going to be quite happy with the performance of the Fed
chair. (Treasury Secretary and former Fed chief Janet) Yellen will only
have good things to say. But there will be Democrats urging him to
replace Powell with a Democrat."
POLICY OR POLITICS?
Politics traditionally has not been a concern when it comes to the Fed,
an institution expected to stay out of Washington's partisan battles,
and one where U.S. presidents have often crossed party lines to
reappoint their predecessors' picks for the central bank's top job.
Along with guiding U.S. monetary policy, the Fed chief is perhaps the
most influential official in global finance.
Reappointing Powell would restore a bipartisan approach, as well as
continue policies that, step by step, have been elevating issues Biden
often cites, including advancing racial equity.
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Federal Reserve Chairman Jerome Powell speaks with Fed Governor Lael
Brainard (L) at the Federal Reserve Bank of Chicago, in Chicago,
Illinois, U.S., June 4, 2019. REUTERS/Ann Saphir/File Photo
A moderate by temperament, Powell over the past two years had the Fed delve deep
into how the central bank influences the job market. In the end, policymakers
not only decided they could do much more to champion the cause of attaining
maximum employment - one of the central bank's two statutory mandates - but
redefined the concept as something that needed to be "broad-based and
inclusive."
"Powell is fully committed to the president's priorities of getting the economy
back to full employment as fast as possible, and easing the financial stress on
low-income households and disadvantaged groups," said Moody's Analytics
economist Mark Zandi, who expects Powell to get another four-year term.
Enter the politics.
Powell, a Republican, past private equity executive, and native of the suburban
professional class enclave of Chevy Chase, Maryland, was first appointed to the
Fed's Board of Governors in 2012 by then-President Barack Obama. He has spent
more time than his predecessors cultivating lawmakers https://www.reuters.com/article/usa-fed-powell-idUKL2N1X41LG
from both parties
https://fingfx.thomsonreuters.com/
gfx/editorcharts/USA-FED-POWELL/0H001QEH677G/index.html in Congress. Those
relationships could mean, for Biden, a potentially pain-free reconfirmation for
a key economic policy maker in broad alignment with the president's agenda - and
stability where it matters.
But Powell was also the man former President Donald Trump promoted to replace
Yellen, in a move that not only broke the bipartisan mold, but did so in favor
of someone with arguably lesser economic credentials.
At the time, Powell had hoped to become the Fed's vice chair to oversee
financial regulation, a role well-aligned with his career as a Wall Street
lawyer and investor. His leap to the top job was unexpected, and he would
readily acknowledge Yellen's influence over his own understanding of the
position.
After a year in which the Fed itself has discussed openly its institutional
weaknesses in diversity as well as past blindness to how its policies failed
many workers, there may be more than a few calls for Biden to put his mark on
the central bank's leadership.
Dennis Kelleher, president of the Better Markets think tank and a member of the
Biden transition team on the Fed and regulatory issues, said Powell can be
lauded for his handling of the current crisis but should also be held to account
for the central bank's regulatory decisions - terrain where Brainard's
dissenting votes "are a very good road map to where and how far they got the
deregulation wrong."
For example, under Powell and Randal Quarles, the Fed's vice chair for
supervision, the central bank has rolled back restrictions on certain trading
activities by banks and given them more advance information about their annual
stress tests. A Trump appointee, Quarles' term expires in the fall, giving Biden
yet more scope to reshape the Fed."When you add up the deregulation by the
Federal Reserve under the Trump administration it amounts to a significant
weakening of critical financial protection rules, and Chair Powell should be
required to answer to that," Kelleher said. "It is not the case that there are
just one or two or three people who can do that job."
(Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao)
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