Perspective:
The progressive case against Jerome Powell is weak»
In their first terms, both Bill Clinton and Barack Obama reappointed the Republican chairs of the Federal Reserve that they had inherited from their predecessor. Donald
Trump did not follow suit, reasoning that even though he thought Janet Yellen was “terrific,” you’d “like to make your own mark.”
Until recently, I thought Trump had the right view, and that President Joe Biden should follow suit and replace Jerome Powell with a Democrat. But the White House has apparently not yet made up its mind — and I’ve changed mine: Despite some discord from within his own party, Biden should put an end to speculation as soon as possible and announce another term for Powell.
Not only is the affirmative case for Powell strong, but the progressive case against him is weak. At a congressional hearing last week, Sen. Elizabeth Warren criticized the Fed for its lax oversight of Wall Street. In the American Prospect, the economist Robert Kuttner writes that Powell has been “dismal” on financial regulation.
This is largely unfair. Powell served on the Fed board of governors concurrently with Yellen’s tenure as chair, and he did not dissent from any Yellen-era regulatory rulings. It’s true that when fellow Trump appointee Randy Quarles took the helm as vice chair for supervision, the Fed’s attitude toward the financial industry got more lenient. But the solution there is a new vice chair for supervision.
More broadly, there are many federal appointees who oversee some aspect of financial regulation — directors of the Federal Trade Commission, the Federal Communications Commission or the Office of the Comptroller of the Currency, not to mention any number of officials in the Treasury and even Justice departments. But there is only one central bank that can make monetary policy. The tendency to see the Fed as primarily a bank regulator is a longtime mistake of the Democratic left, often exacerbated by a misguided sense that stimulative monetary policy is somehow regressive.
There’s also the Senate calendar to consider. Congressional Democrats are pushing for an ambitious budget reconciliation package, trying to pass a bipartisan infrastructure bill, and coping with a large number of executive-branch vacancies.
Meanwhile, consider the case for Powell: With an assist from fiscal policy, he helped guide what was almost certainly the world’s strongest and most robust economic response to the COVID pandemic. And now that inflation has risen, he’s providing exactly what you want from a Fed chair — a measured policy response that is not prematurely slowing the economy but appears to have reassured financial markets and the public that inflation will not spiral out of control. What’s more, for whatever reason, his calls for more fiscal stimulus seem to have much more credibility with congressional Republicans than those of former Fed Chair Ben Bernanke.
My erstwhile opposition to Powell mirrored Trump’s logic about Yellen: There was nothing wrong with him, but Biden needed his own person in place.
My rationale went something like this: It is absurd that the Fed has had a Democratic-appointed chair for only four of the last 34 years. It’s not healthy for the country, or for Democrats, to convey the impression that one party lacks confidence in its ability to manage the economy. More than that, Obama would have benefited in his first term from a Fed chair who was a political supporter and was willing to go the extra mile to make his policies and his administration look like a success.
In the immediate aftermath of Biden’s election, I thought the economy would be in need of a similar boost. But the December 2020 fiscal deal and the American Rescue Plan have left the U.S. economy with an adequate level of demand — and some real public concern about inflation.
Under the circumstances, Powell’s strong commitment to full employment and his perspective on inflation, combined with his bipartisan credibility, is genuinely valuable.
Nobody benefits from a contentious hearing about a new Fed chair. Better for the White House to focus on filling other crucial jobs, including an outstanding vacancy on the Fed’s board of governors. It’s not that Powell is irreplaceable — Lael Brainard, for example, would do an excellent job. But she can get the job in Biden’s second term, or move to Treasury when Yellen is ready to step down.
The task of replacing Powell poses great risks with little upside. For now, Biden should put the loose talk to rest and make it clear that Jerome Powell is his man.