Fed’s Powell facing tumult as Biden considers retaining him
As Jerome Powell’s term as the chair of the Federal Reserve nears its expiration, President Joe Biden’s decision over whether to keep him in the job has grown more complicated amid Sen. Elizabeth Warren’s vocal opposition to his leadership and an ethics scandal that has engulfed his central bank.
Powell, whose four-year term as chair expires early next year, continues to have a good chance of being reappointed because he has earned respect within the White House for his aggressive use of the Fed’s tools in the wake of the pandemic recession, people familiar with the administration’s internal discussions said.
But the decision and the timing of an announcement remain subject to an unusually high level of uncertainty, even for a top economic appointment like the Fed chairmanship. The White House will likely announce Biden’s choice at some point in the coming weeks, but that too is tenuous.
The administration is preoccupied with other major priorities, including passing spending legislation and lifting the nation’s debt limit. But the uncertainty also reflects growing complications around Powell’s renomination. Warren, D-Mass., has blasted Powell’s track record on big-bank regulation and last week called him a “dangerous man” to lead the central bank.
She has also taken aim at Powell for not preventing top Fed officials from trading securities in 2020, a year in which the central bank rescued markets, potentially giving them privileged information. Two regional presidents traded for their own profit in assets that the Fed’s actions could have influenced, according to recent disclosures. And Richard Clarida, the Fed’s vice chair, moved money from bond funds into stock funds in late February 2020, just before the Fed hinted that it would rescue markets and the economy.
“It is not clear why Chair Powell did not takes steps to prevent these activities,” Warren said during a Senate floor speech Tuesday, after sending a letter Monday calling for the Securities and Exchange Commission to investigate whether the transactions amounted to insider trading. “The responsibility to safeguard the integrity of the Federal Reserve rests squarely with him.”
On Tuesday, Karine Jean-Pierre, a White House spokesperson, said Biden continued to “have confidence in Powell at this time.”
The White House’s impending decision over Powell’s future comes at a critical moment for the U.S. economy. Millions of jobs are still missing compared with before the pandemic, and inflation has jumped higher as strong demand clashes with supply chain disruptions, presenting dueling challenges for the Fed chair to navigate. The Fed’s next leader will also shape its involvement in climate finance policy, a possible central bank digital currency, and the response to the central bank’s ethics quandary.
“This is starting to feel like an incredibly consequential time for the Fed,” said Dennis Kelleher, the chief executive of Better Markets, a group that has been critical of the Fed’s deregulatory moves in recent years, and which has criticized it for insufficient ethical oversight.
Recent financial disclosures showed that Robert Kaplan at the Federal Reserve Bank of Dallas traded millions of dollars in individual stocks last year, and Eric Rosengren at the Federal Reserve Bank of Boston, traded real estatetied securities even as he warned publicly about problems in that sector. The trades have drawn criticism because they came during a year in which the Fed hugely influenced a wide range of financial markets.
Powell kicked off an internal ethics review last month. A Fed spokesperson said Monday that an independent government watchdog would carry out an investigation into whether senior officials broke relevant ethics rules or laws.
But some progressives believe Powell should not be reappointed. Jeff Hauser, the founder and executive director of the Revolving Door Project, which has urged Biden to keep corporate influence out of his administration, has pointed out that the Fed chair himself moved money around last year, listing 26 transactions, albeit all in broad-based funds. He also noted that Lael Brainard, a Fed governor and a longtime favorite to replace Powell if he is not reappointed, did not report any transactions year.
“If you’re trying to go above and beyond, and be beyond reproach, not trading is the better option,” Hauser said.