Keeping Powell at the Fed was stellar choice

Sen. Elizabeth Warren, the liberal Democrat from Massachusetts, described him as a “dangerous man” who “failed as a leader” at the U.S. Federal Reserve.

Donald Trump called him “clueless” and an “enemy” of the U.S. when he refused to cave into the then-president’s self-serving demands to overheat the economy.

Yes, Jerome “Jay” Powell stood up to both Warren and Trump. No wonder we like him, and no wonder we support President Joe Biden’s decision to nominate him for another four-year term as chairman of the U.S. Federal Reserve — the most important economic policy post in the world.

Powell’s first term was among the strangest of any Fed chair. The president who appointed him repeatedly bashed him on Twitter, and then a pandemic threw every forecast and expectation into uncharted territory.

Powell never lost sight of the central bank’s mandate to both maximize employment and, at the same time, keep prices stable. But as every shopper knows, that balancing act is currently out of whack.

While job creation is healthy, with unemployment at just 4.6%, prices have soared by 6.2% this past year. That is way off the Fed’s inflation target of 2%, owing (Biden hopes) mostly to pandemic-induced supply shortages and atypically strong demand for consumer goods.

To combat inflation, a Powell-led Fed is expected to jack up interest rates three times over the next year or so, according to financial market indicators. That’s one more rate hike than might have been expected had Biden chosen a different Fed chair less committed to battling price increases.

Considering that Democrats face a difficult midterm election in less than a year, it was gutsy for Biden to resist the left wing of his party and choose a lifelong Republican who is likely to put a drag on economic growth by raising rates to tame inflation.

The biggest risk for Biden, and the country, is a lack of faith in bedrock institutions, including the Fed, which is supposed to operate independently of politics. Trump’s political attacks on Powell had the effect of sharply reducing the trust that Republican voters place in the central bank, even though its governing board was being run by Powell and other Republicans.

Biden’s decision to nominate Powell restores a long tradition of central bank chiefs being retained by presidents regardless of party, a tradition Trump flouted when he replaced Janet Yellen with Powell in 2018. Now Biden has reassured financial markets, signaled his understanding of the importance of continuity and put the Fed’s independence above partisan politics.

Biden still has cards up his sleeve to satisfy liberals in his party. His nominee for vice chair of the Fed is Lael Brainard, a Democratic Fed governor who was the leading candidate to replace Powell had Biden decided not to nominate him. If the Senate confirms Powell and Brainard, as expected, three openings would remain on the Fed’s seven-member governing board, including vice chair for supervision, an influential post that oversees regulatory affairs.

Whoever Biden nominates, with all due respect, let it not be Sen. Warren.