Biden faces another huge decision apart from COVID and Afghanistan

Amid all the other challenges on his plate, President Biden soon will make what may be his most important personnel decision: whether to reappoint Jerome Powell as chairman of the Federal Reserve Board.

This should be an easy call. Powell, a Republican, has presided over an expansionist monetary policy sought by the Biden administration’s policies. He is a known figure, respected in the financial community and enjoys good relations on Capitol Hill.

(Full disclosure: Powell’s son and my son were school classmates and are good friends.)

According to multiple news sources, Treasury Secretary Janet Yellen, Powell’s predecessor as Fed chair, recommended Biden reappoint Powell. That should count more than all other advisers combined.

There are two reasons why this isn’t a slam dunk, and instead has maybe only slightly better than the 60 percent odds one close Fed watcher estimates.

Some on the left, principally Sen. Elizabeth Warren (D-Mass.), aren’t Powell fans. They want the White House to pick someone else, perhaps Fed Governor Lael Brainard. (This isn’t a universal view; the liberal Roosevelt Institute recently praised Powell’s monetary leadership while separately declaring the Fed needs to be much more aggressive on climate.)

A related issue is the administration’s strong push for diversity in appointments; the current six Federal Reserve governors are all white, with two women.

The White House for months held up the nominations of critical ambassadorial posts — China, Japan and Afghanistan — until they had sufficient diversity in envoy ranks. Finally, last Friday they announced veteran diplomat Nick Burns for China and prominent politician Rahm Emanuel for Japan along with Michael Battle, a prominent Black scholar and diplomat, to be ambassador to Tanzania.

The left’s objection to Powell centers less on monetary policy than on regulation of the financial sector, which hasn’t been a Powell priority. He’s not a proponent of rigorous regulation of big banks.

But Powell isn’t the only position coming open at the Fed.

There is an existing vacancy because Trump’s nomination of Fed-basher Judy Shelton was rejected in the Senate. Another vacancy occurs in five months when Republican Richard Clarida’s term expires. Randy Quarles, a Trump appointee and experienced economics official, serves as the vice chair for supervision, a role that expires for him in October, though his term as a Fed governor lasts another decade.

This affords Biden the opportunity to please each faction: reappoint Powell; name a tough-on-banks vice chair for supervision — perhaps Brainard, currently the only Democrat on the board — with a premium on diversity for the open posts.

This would be a delicate time, economically and politically, for change in the Fed chair. There are growing concerns about increased inflation, as well as worries that the surge of the delta variant of the coronavirus might stifle the robust economic recovery.

Powell, as well as championing an expansionary monetary policy, has reached out to inner city advocates, small businesses and consumer/labor groups. Income inequality is the economy’s major challenge over the next decade, he declared, and insisted that homelessness be part of an economic plan.

This belies his background as a private equity executive. At the same time, he has forged relative consenus on a politically disparate board.

Powell’s standing with Democrats got a boost when he was attacked, viciously, by Trump. After the Fed raised interest rates during a strong, Pre-COVID economy, Trump said appointing Powell was a big mistake, suggesting he was an “enemy” worse than Xi Jinping.

Trump, it seemed, was trying to set up Powell to take the blame for any economic deficiencies in 2020. Then came the coronavirus — and Powell acted swiftly and sweepingly, winning widespread praise for heading off a greater economic cataclysm.

Another compelling case for reappointment is Powell’s relationship with Yellen. Powell was on the board, appointed by President Obama, when Yellen was chair. They have a good rapport.

The relationship between the Federal Reserve chairman and the Treasury Secretary matters. It was critically important during global crises when Alan Greenspan was Fed chair working seamlessly with Bob Rubin and then Larry Summers. It was the case when Greenspan’s successor, Ben Bernanke, worked with Treasury Secretaries Henry Paulsen and Tim Geithner during the financial meltdown of 2008 and 2009.

Conversely, during the latter stages of the Ronald Reagan presidency and that of George H.W. Bush, tensions between the Fed and Treasury complicated economic policies.

With this context, Biden should reappoint Powell as soon as possible.

Al Hunt is the former executive editor of Bloomberg News. He previously served as reporter, bureau chief and Washington editor for the Wall Street Journal. For almost a quarter century he wrote a column on politics for The Wall Street Journal, then The International New York Times and Bloomberg View. He hosts Politics War Room with James Carville. Follow him on Twitter @AlHuntDC.