Keep Fed chairman
Few looking at the mild-mannered Jerome Powell, chair of the Federal Reserve, would imagine that he is a “dangerous man.” But that is the conclusion Sen. Elizabeth Warren, D-Mass., drew on Tuesday, as Powell testified before the Senate Banking Committee. “Your record gives me grave concern. Over and over you have acted to make our banking system less safe,” she said. “And it’s why I will oppose your renomination.”
Powell’s current term expires in February. President Joe Biden should ignore Warren and renominate an accomplished civil servant who has seen the nation’s monetary policy through extremely challenging times.
Warren’s critique centered on Mr. Powell’s oversight of banks. She charged that the chair has overseen deregulation that makes another 2008-style financial crisis more likely—weakening “stress tests” that banks must undergo to prove they can cope with a downturn, for example. Without urgent federal aid, Warren pointed out, big banks would have lost $300 billion when the economy turned south last year, challenging their balance sheets.
Powell responded that the banks could have endured those losses “without difficulty,” and that is in part because of the stress tests Warren argued are deficient. The chair also expressed willingness to revisit the decisions about which Warren complained. The Fed has far more tools now than it did before 2008 to police the financial system. To be sure, Powell has not used them as aggressively as Warren would prefer.
Even so, Warren warned that “renominating you means gambling that for the next five years” on a Republican majority of the Federal Reserve with a Republican chair. It could just as easily be argued that a Republican chair is a plus. As he has responded ably to the covid-19 crisis, the chair has overseen a sea change in monetary policy that many Democrats have long demanded, emphasizing the full employment half of the Fed’s dual mandate, rather than strict inflation control. The significance of this shift is hard to overstate. Yet Powell has pulled it off without substantial partisan controversy.
Renominating Powell would also send an essential message: The Fed must remain as independent and insulated from partisanship as possible. President Donald Trump broke with tradition when he refused to renominate Janet Yellen for another term leading the central bank. Biden should reinstitute the norm that Fed chairs do not change with every new administration, but receive space and deference that other major appointees do not.
There is room for reasonable disagreement about exactly how to administer a stress test. But Warren’s objections are marginal compared to the big picture.