Biden faces high stakes with progressives on Fed pick

President Biden is facing a high-stakes decision on the Federal Reserve’s leadership that could also shape his relationship with progressives.

Fed chairman Jerome Powell has earned high marks for helping shepherd the national economy through the depths of the COVID-19 pandemic, but liberals in the House and Senate are calling for a change.

They want Biden to pick Lael Brainard for the position instead of renominating Powell.

Biden met with both Brainard, a member of the Federal Reserve’s Board of Governors, and Powell, the sitting chairman who was appointed by former President Trump, at the White House Thursday. They are viewed as the two frontrunners for the job and no other name has leaked to the public.

Biden said last week that he’ll make his decision “fairly quickly.”

Brainard, if picked and confirmed by the Senate, would be the second woman to chair the Fed after Janet Yellen and her selection would be cheered by leading progressives such as Sen. Elizabeth Warren (D-Mass.). She is the only Democrat currently serving on the seven-member board.

Warren has praised Brainard for making “a good case for why it is the job of the Federal Reserve to be that cop on that beat and to make sure the largest financial institutions are not putting our economy at greater risk.”

At the same time she has accused Powell of taking deregulatory action that has made the banking system less safe and called him “a dangerous man to head up the Fed.”

At a hearing in September, Warren cited steps taken under Powell’s leadership to weaken stress tests, eliminate Volker Rule restrictions and ease liquidity requirements and financial institutions.

Stress tests were designed to ensure that banks could survive without taxpayer assistance in case the economy got suddenly worse. Warren argues that the Fed’s decision in 2019 to provide more information about the models used for the tests made it easier for banks to pass the tests without necessarily shoring up their balance sheets. 

In 2020, Powell exempted shorter-term trade holdings from complying with the Volcker Rule’s separation of commercial banking and more risky investments. 

And in 2019, the Fed weakened the requirement on banks to hold high-quality liquid assets to back up their other investments, according to Warren. 

Brainard’s selection would be a welcome win for progressives who have had to grit their teeth and watch centrist Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) chop down key parts of Biden’s Build Back Better agenda, such as a national paid family leave program, the $150 billion Clean Electricity Performance Program and higher tax rates for corporations.

A Senate Democratic aide said picking Brainard would “make progressives very happy.”

The aide said while Powell has support from a lot of mainstream Democratic senators, Biden has to worry about growing frustration among liberals in and outside of Congress.

“I do think there’s this sentiment in the House bubbling that they’re so pissed off about this Sinema, Manchin thing. The world is bending over backward for them and they’re doing everything in their power to hold up these lofty goals,” the aide said about anger among progressives over the concessions made by the White House to centrists in the negotiations over the reconciliation package.   

Democratic strategist Steve Jarding said picking Brainard would be a smart political move because it would give a victory to progressives without suffering much if any political blowback.

“This would be an easier one for Biden to give to progressives because it’s a little under the radar and at some point Biden’s going to see and the Democrats are going to see that the progressives kind of took a walk in Virginia — at least they weren’t fired up for Terry McAuliffe — they’re going to see progressives in suburbs matter and they’ve got to be fired up,” he said. “At some point Biden has to throw them a bone.”

While most of the attention in Washington has focused on independent voters breaking to Republican candidate Glenn Youngkin in Virginia’s closely watched gubernatorial race, Jarding said a drop-off in enthusiasm among progressive voters was also a key factor.

Sen. Tim Kaine (D-Va.) and other Democrats blamed Democratic candidate Terry McAuliffe’s loss on the failure to pass the $1 trillion bipartisan infrastructure bill before the Nov. 2 election.

But there’s also evidence that disappointment among progressive over Biden’s stalled social spending agenda, and signs that it will have to be curtailed significantly to get the votes of Manchin and Sinema, also played a role.  

Jarding said there was a drop-off among progressives in the Virginia election. While total Democratic turnout was higher, it didn’t keep pace with growing Democratic registration in the state, he explained.  

“When you look inside the numbers and say, ‘Who actually voted? Did ideology show up? What types of voters showed up?’, there was a statistically significant drop-off with self-identified progressives,” he said.

McAuliffe won 200,000 more votes than outgoing Democratic Gov. Ralph Northam in 2017 but total voter registration in the state has increased by nearly 500,000 over the past four years.

Biden’s job approval rating has steadily ticked down from 57 percent in January to 42 percent in late October, according to Gallup. He lost support most dramatically among independents during that time, but erosion among Democrats was also a factor.

Gallup found Biden’s approval rating was 98 percent among Democrats in January compared to 92 percent in October.

It’s possible Biden can keep Powell and make progressives at least somewhat happy.

Randal Quarles, the Fed’s first vice chair for supervision, announced Monday he will step down from the Fed at the end of the year. His deregulatory stance on issues made him unpopular with liberals, and Biden could give them a win by selecting a successor who favors more aggressive oversight.

Biden also will get two fill two other slots in addition to the one Quarles is vacating.

Robert Kaplan, the president and CEO of the Federal Reserve Bank of Dallas, and Eric Rosengren, the head of the Federal Reserve Bank of Boston, have also announced their retirements. Both Kaplan and Rosengren came under scrutiny earlier this year for trading stocks that may have benefited from the Fed’s accommodative monetary policy.