Biden stands up for Fed
President Biden announced Monday that he will renominate Federal Reserve Chair Jerome Powell to lead the central bank for a second fouryear term. It is the right move. Powell, a Republican appointee, has been a steady, thoughtful leader through challenging times. His reappointment is in keeping with precedent and signals that Biden respects the independence of the Federal Reserve. That is key today as rising inflation provokes understandable anxiety.
The nomination came later than it should have as a group of progressive lawmakers campaigned against Powell. Their indictment of him was as unfair as it was unwise. For his renomination, Powell may have Treasury Secretary Janet Yellen and other more sensible Democrats to thank. Still, he might yet face a bumpy road as the Senate considers whether to confirm him for a second term.
Sen. Elizabeth Warren has called Mr. Powell “a dangerous man” because his views on bank regulation do not align with hers. Her overheated criticism prompted former congressman Barney Frank, D-Mass., and former senator Christopher Dodd, D-Conn., authors of the landmark banking regulation bill the Fed is implementing, to defend Powell’s performance.
Anti-Powell activists also complained that the Fed chair failed to act on climate change. This is, at best, a tangential issue for the Fed; the fight against global warming will be won or lost in Congress, which sets top-line spending and regulatory policy, not at the central bank.
Powell’s most important job, at least in the near term, will be managing rising inflation. As the pandemic forced an economic shutdown, the Fed chief rightly oversaw a reorientation of central bank policy toward emphasizing job growth, enabling a faster recovery than many economists had predicted. But prices have started rising quickly, in large part because of pandemic-related supply bottlenecks. If the Fed ignores inflation, expectations might get out of hand, leading to an inflationary spiral. On the other hand, if it acts too aggressively, the Fed could crush economic growth.
Adding to the challenge are the increasing political stakes. Republicans blame rising prices on Biden; Biden might in turn blame big corporations, according to recent news reports. These simplistic explanations obscure the real culprits. Powell must tune out the rising political pressures.
In situations such as these, Fed independence is indispensable. Powell deserved renomination, and it was important for Biden to underscore that picking a Fed chair should not be a partisan decision. Thankfully, he resisted the calls from within his party to erode that norm.