Biden reappoints Jerome Powell as Fed chairman at a critical time for the economy

Nov 22, 2021
Originally published on November 22, 2021 10:07 am

President Biden has chosen to keep Jerome Powell in place for a second term as Federal Reserve chairman — a move that signals continuity with the central bank's policies at a time when the economy faces critical challenges, including surging inflation

Biden nominated current Fed governor Lael Brainard to serve as vice chair. Brainard had been seen as a leading contender to replace Powell.

Under Powell and Brainard the Fed has kept interest rates near zero despite the current high prices for all kinds of goods, as it focuses on returning the economy to full employment and as policymakers argue that inflation will prove temporary.

"Powell and Brainard share the Administration's focus on ensuring that economic growth broadly benefits all workers," the White House said in a statement.

Biden's pick to stick with Powell will likely reassure financial markets, despite opposition from some progressive members of the president's own party.

Powell, a Republican, was originally appointed to the Fed's governing board by former President Barack Obama and was elevated to the chairman's post by then-President Donald Trump.

As chairman, Powell has steered the central bank's aggressive response to the economic upheaval caused by the pandemic, slashing interest rates to near zero and quickly launching a series of emergency lending programs.

Powell also oversaw a new Fed policy that directs the central bank to be patient in raising interest rates in hopes of fostering more widespread job growth.

That policy was adopted in 2020 after years in which inflation fell short of the Fed's 2% target, but it's now being tested as prices have surged, pushing inflation to a 31-year high.

The Labor Department says prices in October were 6.2% higher than a year ago, the sharpest increase since 1990.

Powell and his colleagues believe today's price hikes are largely the result of temporary factors tied to the pandemic, which should ease on their own as the health outlook improves. It's a view that's been challenged by some economists and prominent Democrats such as former U.S. Treasury Secretary Larry Summers.

The central bank has to weigh the risk of tolerating higher inflation against the cost of choking off job growth with higher interest rates at a time when millions of people are still out of work.

"It's extremely important that we get that right," Powell said recently at a conference sponsored by the South African Reserve Bank. "I am confident that we will do so over the course of the next year or so. I think in the meantime, it's going to be extremely challenging, certainly in the short term."

Sen. Elizabeth Warren, D-Mass., talks to Federal Reserve Chairman Jerome Powell during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act in Washington, D.C., on Sept. 28. At the hearing, Warren said she is against a second term for Powell as Fed chairman and called him a "dangerous man."
Kevin Dietsch / Getty Images

Powell has faced opposition from progressives

Progressive critics, including Sen. Elizabeth Warren, D-Mass., have accused Powell of watering down bank regulations adopted in the aftermath of the financial crisis. At a recent Senate Banking Committee hearing, Warren described Powell as "a dangerous man."

That criticism failed to get much traction, though. The co-sponsors of the Dodd-Frank law behind those bank regulations, former Sen. Chris Dodd, D-Conn., and former Rep. Barney Frank, D-Mass., have defended Powell and said he deserves a second term.

Powell has also had to navigate an ethics controversy after reports this fall that two former presidents of regional Federal Reserve banks actively traded stocks and other securities last year, at a time when the central bank was heavily involved in financial markets.

Former Dallas Fed President Robert Kaplan and former Boston Fed President Eric Rosengren retired last month after the trades came to light. Both men have denied any wrongdoing, but Kaplan acknowledged that the controversy could be a distraction for the central bank. Rosen said he was stepping down for health reasons.

The Fed's inspector general is reviewing the two men's trades, which appear to be in compliance with the central bank's rules at the time. The Fed has since adopted stricter rules that limit the trading of individual stocks and bonds and require disclosure of any trades within 30 days.

"We have to have the complete trust of the American people that we're working in their interest all the time," Powell said in describing the new rules.

In nominating Powell for a second term, Biden is observing a tradition that Fed chairs typically don't change, even when the party in control of the White House does. That's one way to safeguard the central bank's political independence. Trump broke with that tradition when he replaced then-Fed Chair Janet Yellen, a Democrat who is now Treasury secretary, with Powell four years ago.

Powell's nomination is subject to confirmation in the Senate, where he is expected to get broad, bipartisan support.

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STEVE INSKEEP, HOST:

President Biden has chosen Jerome Powell to lead the Federal Reserve for another four years. Powell has steered the central bank through the sharpest economic downturn in almost a century, which Biden described as a trial by fire. So he goes on trial again, so to speak. NPR chief economics correspondent Scott Horsley is with us. Scott, good morning.

SCOTT HORSLEY, BYLINE: Good morning, Steve.

INSKEEP: I can't say this is a total surprise, but there was a little bit of suspense. Why stay with Powell?

HORSLEY: Well, Powell earned it in the White House view. In a statement, the administration praised the Fed chairman for his steady leadership during the pandemic, which, as you said, triggered the worst economic downturn since the Great Depression. The Fed acted quickly and aggressively when the pandemic struck to counteract the resulting recession. And that's one reason we've also seen a rapid, albeit uneven, recovery. The White House also praised Powell, who is a Republican, for the way he stood up to attacks from former President Trump who had appointed him and thereby protected the central bank's independence.

Now, there were some progressives who wanted Biden to name a Democrat as Fed chair, and the president did throw a bone in that direction by naming Lael Brainard as vice chair. Brainard currently serves on the Fed's Board of Governors. And she had been sort of the leading alternative to Powell. The administration says both Powell and Brainard share the president's commitment to an economic recovery that works broadly for all workers.

INSKEEP: A kind of a difference between the way that President Trump approached the Fed - he removed Janet Yellen, who had taken over not long before, in an effort to put his own person there. Biden keeps the existing chair there in a way that can be cast, I guess, as nonpartisan. How are people responding?

HORSLEY: There's been a positive reaction from lawmakers in both parties. Powell has broad support in the Senate, and he is expected to win easy confirmation. As you say, this is kind of a return to tradition when presidents typically leave Fed chairs in place even if the White House changes power. And that's a way to protect the central bank's independence. The stock market is up on this announcement but not wildly up. I think betting markets had showed Powell was widely expected to get this appointment, so this was largely priced in. This was the predictable move, and markets generally like it when things move in a predictable direction.

INSKEEP: There, nevertheless, is some criticism here. I think we can expect it because it came even before the announcement. Let's start with criticism from the left. What do you hear there?

HORSLEY: Yeah, the most high-profile critic has been Massachusetts Senator Elizabeth Warren. She serves on the Senate Banking Committee, and she called Powell a dangerous man. Warren accused the Fed chair of watering down financial regulations that were enacted after the 2008 financial crisis. That criticism never really got a lot of traction, though, perhaps because even the authors of those post-financial crisis regulations defended Powell and said he deserved a second term. There have also been some progressives who would like to see the central bank take a more active role in battling climate change than it has on Powell's watch. The Fed chair is certainly a climate believer, and he's acknowledged the threat posed to the financial stability by changing climate. But he generally sees the Fed's role in that fight as fairly limited.

INSKEEP: There's also a potential criticism just in the numbers. Inflation is at its highest rate in decades, and the Fed is supposed to manage inflation and keep it down. What challenges does that pose?

HORSLEY: Yeah, it's a big challenge. Price hikes have been bigger and more persistent than the Fed had expected. And forecasters there have consistently underestimated just how high inflation would be. Now, Powell and his colleagues at the central bank still see this as largely a transitory byproduct of the pandemic, and they expect price increases to settle down when the pandemic recedes. But that's taking a long time, and the Fed does say it's watching closely and will raise interest rates if inflation continues to run hot. But this is really tricky territory. The Fed doesn't want to raise interest rates prematurely and slam the brakes on the economy when there are still millions of people out of work. Treasury Secretary Janet Yellen welcomed the news this morning that Powell will stay on. She says an independent and experienced Federal Reserve is critically important in this turbulent time.

INSKEEP: Scott, thanks for the update, really appreciate it.

HORSLEY: Good to be with you, Steve.

INSKEEP: NPR's Scott Horsley on the news that President Biden has renominated Jerome Powell to remain as head of the Federal Reserve. Transcript provided by NPR, Copyright NPR.