Nobelist, senior Democratic economist Stiglitz says Fed's Powell should
go
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[September 08, 2021]
By Howard Schneider
WASHINGTON (Reuters) - For U.S. President
Joe Biden to be true to his agenda he should not renominate Jerome
Powell as Federal Reserve chair, Nobel prize-winning economist and
longtime Democratic adviser Joseph Stiglitz said in an interview that
laid out the case for a remake of the Fed's leadership.
"People have given Powell a lot of kudos because he has supported the
economy through the pandemic...On one hand I agree with that," Stiglitz,
now a Columbia University professor, said in a Friday phone interview
with Reuters.
"On the other hand that is a bare minimum for qualification. Almost
anybody reasonable would have done something similar," Stiglitz said of
the near-zero interest rates and monthly bondbuying Powell has
maintained since March of 2020.
Rather, Biden should look at Powell's looser approach to financial
regulation, his reluctance to build climate-related issues into the
Fed's bank oversight, and check his "gut" on whether Powell would be as
committed to full employment if inflation remains stronger than
expected.
"Is the Biden administration going to fulfill what is at the heart of
its agenda?...It should not be Powell," said Stiglitz, calling current
Fed Governor Lael Brainard the "one obvious candidate out there," who
would take a stronger regulatory stance, push the Fed to account more
fully for climate risks, and arguably tolerate more risk of inflation to
generate higher employment.
Stiglitz said he had not yet spoken about his views to members of the
administration but "probably will engage" as debate over the Fed
appointments continues.
His comments, as former head of President Bill Clinton's Council of
Economic Advisers, a former chief economist of the World Bank, and 2001
winner of the Nobel Prize in Economics, add a heavyweight voice to a
debate that has pitted the stability represented by Powell against calls
to use what could be as many as four open seats on the Fed's
seven-member governing board to overhaul U.S. central banking.
Powell's four-year term as chair ends in February. Some Biden supporters
who follow the Fed most closely have argued he should get a second term
to complete a policy shift that gives more weight to boosting
employment, and courting more risk of inflation to do so.
He is favored for reappointment by market participants as well,
including some who argue it would be risky to make him a lame duck Fed
chair while the central bank navigates a sensitive shift to
post-pandemic monetary policy.
The matter is under active discussion, but Biden has not made a final
decision and White House press secretary Jen Psaki declined on Tuesday
to comment on the president's timeline. Some progressive voices in the
president's Democratic party have become vocal that extending the tenure
of one of former Republican President Donald Trump's appointees with
close ties to the private equity world would be a missed opportunity.
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Columbia University Professor Joseph Stiglitz speaks at the China
Development Forum in Beijing, China March 24, 2019. REUTERS/Thomas
Peter/Pool/File Photo
ROCK THE BOAT
Any change could touch off a tough confirmation fight in the evenly
divided U.S. Senate. At the same time, key Democratic figures like
Massachusetts Senator Elizabeth Warren and Ohio Democrat Sherrod
Brown, chair of the Senate Banking Committee, have withheld any
public endorsement of Powell so far.
Climate change and financial regulation are central to the arguments
against him.
"Financial stability requires dealing with the mispricing of assets"
prone to be affected by extreme weather events or at risk of being
"stranded" as world energy choices shift, said Stiglitz. "If there
is a risk of mispricing you have to include it" in the stress tests
and regulations applied to banks.
Powell has said the main response to climate change needs to be set
by U.S. elected leaders. When pushed by lawmakers he has
characterized the Fed's work on climate as focused more on its
impact on long-term economic performance, and has not embraced
liberal calls to impose stricter capital requirements associated
with climate risk as part of the Fed's shorter-term "stress tests"
that gauge how bank portfolios respond to economic shocks.
Addressing climate change has been a core goal of Biden's
administration, and Stiglitz argued he should embrace those and the
other values he campaigned on.
Stiglitz referred to Clinton's reappointment of then Fed chair and
Republican Alan Greenspan as, ultimately, wrongheaded - promoting
stability and bipartisanship, but allowing Greenspan's faith in
markets and more hands-off approach to regulation to set the stage
for the internet stock bubble and the later and more serious housing
market crash.
Perhaps the weakest argument for Powell, Stiglitz argued, is that he
represents the path of least resistance.
"Nobody wants to disturb the financial markets...There is a
political attractiveness to not rocking the boat," he said. "But in
my view we made a big mistake reappointing Greenspan...I hope Biden
does not make the same."
(Reporting by Howard Schneider; Additional reporting by Nandita
Bose; Editing by Andrea Ricci)
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