The White House is pondering whether or not to take the keys to the U.S. economy away from Federal Reserve Chairman Jerome Powell, with the decision likely boiling down to politics.
Powell’s term as Fed chairman expires in February of next year, meaning President Joe Biden would have to decide on Powell’s fate relatively soon in order to give the Senate enough time to proceed with the confirmation process.
But calls within the Democratic party are emerging to boot Powell.
Politico reported that a number of high-profile progressive House Democrats, including Alexandria Ocasio-Cortez, are pressing the White House to instead appoint a candidate with a stronger record on financial regulation, climate risk, and racial inequality. Fed Governor Lael Brainard has been floated as someone who may check those boxes.
Isaac Boltansky, a director of policy research at Compass Point, points out that it is the Senate — not the House — that will ultimately vote on Biden's Fed chair pick.
"I doubt that it will alter the White House’s calculus," Boltansky said, adding that the COVID pandemic should be enough proof of Powell's "steady economic leadership."
Powell himself appears to be mindful of the Senate's significance in his renomination odds.
From inauguration through the end of June 2021, Fed records show Powell meeting with 33 of 100 senators — including all nine freshmen senators who were newly elected or appointed. It is likely the Fed chairman added to that tally over the summer, although the Fed has yet to detail Powell’s meetings since July.
That may make up for the lack of face-to-face time with Biden, who has said he has been “very fastidious about not talking to [Fed officials]” for the sake of preserving the central bank’s independence. Powell’s first meeting with the president happened in late June, about five months after inauguration.
Powell’s presence on Capitol Hill has not gone unnoticed. He’s also taken many meetings with members of the house since becoming Fed chair in 2018, noticeably charming both sides of the House Financial Services Committee.
“I compliment and thank Chairman Powell not only for his leadership during this pandemic, but his creativity and the way he was available to us,” the committee’s Democratic chair, Maxine Waters, said in June. The committee’s top Republican, Patrick McHenry, outright told Powell in July that he had “earned and deserve” another term.
Finding a balance
The challenge for Powell, a Republican, concerns the multitude of issues that politicians are examining as the chatter over his fate amplifies.
Financial regulation has attracted criticism from the likes of former Federal Deposit Insurance Corporation Chair Sheila Bair, who said Powell enabled Trump-appointee Randal Quarles's efforts to pare back some post-financial crisis bank regulatory reforms.
“With increasingly fragile and unpredictable financial markets, we cannot afford a Federal Reserve Board chair simply standing by with regard to financial stability,” Bair wrote in a Yahoo Finance op-ed.
Sen. Joe Manchin has expressed concern over Powell’s performance, but for a different reason.
“With the recession over and our strong economic recovery well underway, I am increasingly alarmed that the Fed continues to inject record amounts of stimulus into our economy,” the West Virginia Democrat wrote in a letter to the Fed on Aug. 5.
Manchin pointed to high readings of inflation as a consequence, the latest of which have broken 30-year records.
Powell appeared to heed these concerns. In remarks delivered last week, the Fed chief outlined all the reasons why high inflation will likely “prove temporary.” Still, the Fed chairman offered reassurance that the Fed would respond to higher inflation if it became a “serious concern.”
Fed watchers said that was helpful to his renomination prospects, as the White House prioritizes strong monetary policy in its Fed picks.
“Our own sense is that his prospects of getting a second term have improved sharply as the White House has become concerned about political risk from inflation,” Evercore ISI noted last week.
Powell himself has not directly commented on any conversations related to a possible renomination, beyond admitting in February that “I love my job.”
Some of his colleagues have offered support.
“I really enjoy working with Jay and I certainly hope that continues,” Chicago Fed President Charles Evans told reporters in July.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.