Fed reappointment splits progressives

Liberals are split over whether President Biden should reappoint Jerome Powell as chairman of the Federal Reserve, with some urging the White House to switch gears. 

Powell is supported by some liberal lawmakers, economists and activists who argue his undaunted push for an employment-focused Fed is exactly what the central bank needs to continue.

Under Powell, a Republican, the Fed said it would not raise rates until the labor market showed clear signs of reaching full employment after previous regimes choked off recoveries by raising rates too quickly. Many liberal economists say Powell has played a foundational role in refocusing the bank on the needs of the vulnerable.

Yet other progressive activists say Powell needs to go when his term expires in February.

They say that Powell undermined the economy — let alone his case for nomination — by rolling back key safeguards created by the Dodd-Frank Wall Street reform law.

The Powell Fed has streamlined bank capital requirements, revamped a ban on certain risky investments with bank capital and eased stress-testing requirements originally imposed under the Dodd-Frank Act. All of these changes were opposed by Federal Reserve board member Lael Brainard, a favorite of some liberals to replace Powell. Brainard was also considered as a potential Treasury secretary for Biden.

“I don’t see how you can be considered a full employment champion if you are actively exacerbating a significant threat to full employment,” said Gregg Gelzinis, associate director for economic policy at the Center for American Progress, a liberal think tank.

“Financial crises have awful impacts on the labor market and financial regulation, and monetary policy can work hand in hand toward achieving the goal of full employment,” he continued. 

Others are just as adamant that Powell should be back for another term.

“One of the crucial battles this year for those who want to see a more equitable and just economy is ensuring that the changes Powell put into motion over the past several years become embedded in the everyday policy and practices of the Federal Reserve,” wrote Mike Konczal, director of macroanalysis at the Roosevelt Institute, a progressive think tank, in a policy paper last week.

Powell’s unique mix of policy views and close ties with lawmakers helped propel his rise to the Fed chairmanship in 2017, when he was nominated by former President Trump to replace now-Treasury Secretary Janet Yellen.

Trump elevated Powell, who was first appointed to the Fed in 2012 by former President Obama, largely to preserve Yellen’s support for low interest rates while replacing her with a former banker inclined to loosen regulations. 

If he is re-nominated, Powell seems likely to win confirmation.

While Trump eventually turned on Powell for refusing to wage a currency war, the Fed chief still has broad support among lawmakers in both parties, particularly after the bank’s successful efforts to calm markets in March 2020.

But there could be some opposition from progressive senators who have expressed concerns about Powell’s financial regulatory record.

Senate Banking Committee Chairman Sherrod Brown (D-Ohio) and Sen. Elizabeth Warren (D-Mass.) each chastised Powell during a July hearing about his support for loosening bank rules and have refused to say whether they’d back his re-nomination.

“During your tenure, the Fed has rolled back important safeguards,” Brown said during the July 15 hearing. “It’s time to try something different. We need a banking system that works for everyone.”

Liberal advocacy groups opposed to another term for Powell are also taking aim.

The Revolving Door Project has raised questions about his true commitment to full employment in a recent series of blog posts and research briefs.

The group has criticized Powell for refusing to loosen the terms of the Fed’s emergency lending facility for state and local governments in ways that would have helped cities with weaker credit ratings reap greater benefits, but adjusting a business lending facility to help cover the fossil fuel sector.

It also published an exhaustive takedown of Powell’s pre-Fed career with the Treasury Department under former President George H.W. Bush, investment bank Dillon Read and two private equity firms — along with the tens of millions of dollars he made in the process.

“Powell’s record on the Fed shows he is flighty at best when it comes to aiding any societal actors besides Wall Street interests. In a time of massive inequality, climate catastrophe and centuries-old racial injustice, we shouldn’t settle for more of the same,” said Revolving Door research director Max Moran.

Even Powell’s liberal supporters are candid about their concern for his regulatory agenda but see ways to limit his influence on bank rules.

“I think there’s reason for concern about the recent financial regulatory record,” said Kathryn Judge, a professor of banking law at Columbia University.

Judge, however, said Biden should surround Powell with fierce advocates for stronger financial regulation and not replace him.

Randal Quarles, the Trump-appointed Fed vice chair of supervision, has until October before his term as the bank’s regulatory point man expires. Both he and Fed Vice Chairman Richard Clarida, a fellow Trump appointee whose term as the Fed’s No. 2 expires in January, are also expected to leave the bank next year.

Biden could use those open positions, along with a seat unfilled by Trump, to fill the Fed with officials aligned with Powell on monetary policy but closer to his progressive detractors on bank regulations.

“That is the optimal path forward. Powell has done an outstanding job that should not be forgotten in putting the Fed’s employment mandate on equal footing with its efforts to maintain stable prices,” Judge said.

“Those types of moves would fundamentally change sort of how the Fed would look like.”

Biden has said little about his plans for the Fed chairmanship beyond stressing his support for the bank’s independence. Even so, Fed watchers say Powell has strong odds to clinch the nomination with the delta variant wreaking havoc and the president embroiled in battles over a $3.5 trillion budget plan, raising the debt ceiling and the withdrawal from Afghanistan

“Biden has, and will have through the rest of this year, enough complicated challenges on other fronts without adding another one by unsettling investors and a large chunk of Congress with a new Fed chair,” wrote Ian Katz, director at research consultancy Capital Alpha Partners, in an analysis last week.