Friday, September 17, 2021

Biden faces pressure to choose Fed chairman

US President Joe Biden will not be able to decide whether to appoint Federal Reserve Chairman Jerome Powell until February, but Democratic politicians and liberal radical groups are already putting pressure on the government to choose a more progressive person. Lead the national central bank.

Although it may seem premature for the power participants in Washington to be concerned about the prospect of replacing Powell in six months, the controversy illustrates the extraordinary importance of Powell’s work.

David Wessel, director of the Hutchins Center for Fiscal and Monetary Policy of the Brookings Institution, said: “The first thing to appreciate is how powerful the role of the chairman of the Federal Reserve is.” “The person in charge of this job is the most important economy in the world. Policy makers, this is why the global market is paying attention to every adverb and raised eyebrow raised by the chairman of the Federal Reserve. So this is a big deal.”

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Most experts believe that Powell’s re-election is the most likely outcome, but this is unlikely to prevent radicals from trying to persuade the Democratic president to turn in a different direction.

Fed structure

The Federal Reserve Board is composed of seven “governors” who are appointed by the president and have overlapping terms of office, each serving for 14 years. The President elects the Federal Reserve Chairman, Vice Chairman, and Vice Chairman of Supervision from the current board of directors for a four-year term.

Document-Federal Reserve Chairman Jerome Powell testifies on Capitol Hill, Washington, July 15, 2021.

Former Democratic President Barack Obama appointed Republican Powell to the board of directors in 2012 to fill vacant seats. Two years later, Obama again appointed him for a full term, which will end in 2028. Former Republican President Donald Trump appointed Powell as chairman in February 2018. This term will end in February next year.

Many Democrats and militant organizations want to see Democrats replace Powell as chairman. The most frequently mentioned candidate is the Democrat Fed Governor Lyle Brainard appointed by Obama. She served as the Undersecretary of International Affairs for the U.S. Department of the Treasury from 2010 to 2013.

Monetary Policy Honor

When people think of the Federal Reserve, most of them pay attention to its role in setting monetary policy: for example, determining interest rates and stimulating the national economy.

During his time in charge of the Federal Reserve, Powell was praised by many Democrats for implementing monetary policy aimed at reducing unemployment as much as possible, even at the risk of rising inflation, which made him unpopular among those who advocated a more conservative approach. .

In fact, experts believe that the Fed’s monetary policy under Brainard’s leadership will not be very different from Powell’s.

Symbolism and substance

In Wessel’s view, the Democratic Party has two arguments in the debate over whether to succeed Powell. He said that, first of all, Powell was a white male Republican.

“For some Democrats, it is difficult to understand why the president should reappoint a white male Republican and there is a high-quality woman who can take up the job of a Democrat,” he said.

Second, in terms of policy orientation, Brainard and Powell have real differences in the role of the Fed as a financial regulator. In addition to formulating monetary policy, the central bank also plays an important role in the supervision of U.S. banks and financial institutions.

Deregulation friendly

Powell is generally friendly to the Trump administration’s efforts to relieve part of the regulatory burden imposed on banks after the financial crisis in the late 2000s. Many of these rules require banks to hold more capital to prevent losses in the recurrence of the 2007-2010 subprime mortgage crisis or similar disasters.

Document-Federal Reserve Governor Lael Brainard speaks at Harvard University in Cambridge, Massachusetts on March 1, 2017.

Brainard publicly opposed many of the changes in the Trump era.

This has led to severe criticism of Powell by some of the most outspoken members of the Democratic left, including Senator Elizabeth Warren of Massachusetts, who told Bloomberg TV last month, “I’m worried that he weakened over and over again. The regulation here… “We need someone who understands and uses monetary policy tools and regulatory tools to ensure our economic security. Let us not forget what happened in 2008. ”

In the same interview, Warren praised Brainard. He said: “I have read about Lyle Brainard’s objections in the many deregulation actions taken by the Fed. I have to say that they are strong and powerful objections. She explained very well why the Fed’s job is to be the policeman of that beat and to ensure that the largest financial institutions do not put our economy at greater risk.”

Rights Protection Group

On Monday, more than 20 militant organizations including Greenpeace in the United States, the International Service Workers’ Union, and the Sierra Club signed a letter drafted by the Revolving Door Project, which asked Biden to appoint a new Fed chairman , He will focus on a series of issues that usually have nothing to do with the central bank.

The letter urged Biden to consider appointing Fed leaders — including two vice chair positions — who will focus on issues such as climate change and systemic racism, and push the central bank to adopt more typical concerns.

The letter said: “We hope these considerations will affect your decision on the Fed during your presidency.” “These will be one of the most important personnel decisions you will make during your presidency. We urge you to weigh your progress. Think deeply, systematically, and bravely while on the road.”

May have a signal in October

The term of the Fed’s Vice Chairman of Supervision Randall Quarles will expire in October. Some observers have suggested that by letting Brainard assume this role, Biden can appease Democrats who want stricter supervision of financial institutions.

However, due to the Fed’s hierarchical structure, the chairman actually has the final say on any major changes in industry regulation, which means that such a move may make Biden’s left unsatisfied.

Some people say that this is unlikely to happen anyway.

“One of the reasons Joe Biden became President of the United States is that he is not a progressive himself, even though he has been portrayed in a wide range of brushstrokes,” said Mark Hamrick, a senior analyst and Washington bureau chief. Bankrate.com. “I don’t think… in his words or actions, he has already stated that he firmly supports a tougher stance on financial supervision.”

In addition, Hamrick said that if the agency’s leaders and senior officials responsible for supervision are not on the same page, the Fed will have difficulty operating effectively.

Return to “institutional norms”

Wessel said that one of the arguments for the reappointment of Powell is that this will mark the restoration of consistency in the leadership of the central bank. He said that doing so will “restore institutional norms, that is, this job will not change with changes in the White House.”

He added that the second argument is that, in most cases, Powell has done a good job of the Fed’s biggest task.

He said that for those who think that the most important thing the Fed does is to manage monetary policy, the question is, “When you find someone the market seems to trust and has some experience, why do you waver? If you No need?”

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Biden faces pressure to choose Fed chairman
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