Powell is the right choice for the Federal Reserve

President Joe Biden is right to nominate Federal Reserve Chair Jerome Powell for a second term. No disrespect to Lael Brainard, who was under consideration as an alternative; the White House says she’ll be nominated as vice chair instead. Both are eminently capable central bankers. But two good reasons argued for Powell: the need for continuity, and the need to resist politicizing the Fed at a moment when its independence might come into question.

The Biden administration has no quarrel with the way the Fed has conducted monetary policy during Powell’s first term. Challenged by the pandemic, the central bank maintained strong and steady support for demand and succeeded in keeping financial markets functioning well – neither of which should be taken for granted. In recent months, inflation has climbed higher than most analysts expected owing to supply-chain disruptions. Some of this rise is likely to be temporary, but how much is unclear. Policy needs to be adjusted, and this is in train: The Fed has announced it will taper its bond purchases over the coming months, and financial markets are starting to anticipate an earlier liftoff in interest rates.

Maintaining confidence in the Fed’s ability to fulfill its dual mandate on inflation and employment is crucial. It might’ve been better to start tapering earlier, when the first signs of higherthanexpected inflation appeared. But this was a close call, and not one on which Powell and Brainard were at odds. Looking forward, abruptly tightening in an effort to catch up with recent developments would also be a mistake. Better to nudge investors’ expectations in the right direction than shove them too forcefully. Again, Powell and Brainard most likely agree. Appointing a new chief amid this delicate transition would’ve served no purpose except to call the continuity of policy into question – an unnecessary risk.

Any suspicion of political calculations would’ve seriously compounded that error. Powell is a Republican and Brainard a Democrat. Their ability to work closely as colleagues is welcome in its own right, and sets an example for other parts of government. Choosing Brainard over Powell in response to calls from progressives for a partisan appointment would’ve simply aroused opposition to Brainard in Congress and moved the Fed one step closer to being seen as a political actor rather than a politically independent entity.