Investment

Biden is looking for a new path for the Fed despite Powell’s choice

WASHINGTON (The Hill)-President Joe Biden emphasized continuity and bipartisanship when he voted for the top two positions on the Federal Reserve this week. But his next list of nominees could establish a solid leftist majority in the central bank.

Biden announced Monday that he would replace Fed Chairman Jerome Powell, a Republican who was highly favored by both parties, and would appoint Lael Brainard – the only Democrat on the bank’s Board of Governors – as vice chair.

Biden said both Powell and Brainard will maintain the Fed’s “stability and independence” as the U.S. economy struggles to stave off the coronavirus recession. Everyone joined the Fed during the Obama administration, was well respected among policy makers and played a key role in pushing the bank toward a greater focus on work.

But Biden still has three seats on the seven -year Fed board to fill and the vacant vice chairmanship of the administration, which sets the Fed’s regulatory agenda. Biden said his new selections will not be the same as the latter, adding that his next nominees will “bring new perspectives and new voices,” along with “long overdue” variations on the Fed. board.

The board has the final say on the Fed’s regulatory and oversight actions and automatically serves on the Federal Open Market Committee (FOMC), the Fed’s larger panel that regulates bank interest rate movements and other actions. in monetary policy.

If all three of his future nominees are removed from the Senate, the Fed board will be headed by a Republican who aligns most of Biden’s views on the economy and is effectively controlled by a Democratic majority.

“With three open seats and the vice chair for administration, there is still plenty of opportunity for Biden to make a meaningful and unique imprint on the Federal Reserve’s trajectory,” said Kathryn Judge, a professor of banking law at Columbia University.

“The continuity that Biden has tried to convey is really a commitment to support monetary policy and the focus on unemployment that Powell led during his leadership, but there are many other issues that the Federal Reserve could address in the coming that year. “

While Powell has aligned with the majority of Democrats on maximizing employment until inflation is on the right path to becoming unsustainable, progressives have backed his support for looser fiscal policies and are reluctant to throw the Fed into the fight against climate change. Liberals also insisted the Fed could do more to focus its powers on closing the racial wealth gap, especially as it deployed trillions in emergency loans at the start of the pandemic.

For those reasons, Biden faced intense pressure from the left to change the Fed and replace Powell. Opponents of Powell’s renunciation are urging Biden to surround him with bona fide liberals who could push the Fed toward tougher monetary policies and climate action.

Progressives and climate activists have specifically focused on the administration’s vacant vice chairmanship as a key test of Biden’s plans for the Fed.

“Powell’s failures in regulation, climate, and ethics make the vacant position of Vice Chairman of Supervision critical,” Sen. said. Elizabeth Warren (D-Mass.), Who opposed Powell’s nomination but would vote for Brainard’s promotion, said in a statement.

“This position should be filled by a strong regulator with a proven track record of tough and effective enforcement – and it needs to be done quickly.”

Biden said he plans to announce his next Fed picks in early December, though it could take several months until the Senate reviews and confirms his nominees.

Although the president will need to silence the concerned left, he still faces the challenge of pasting nominees through a Senate that is divided equally between the parties and a Democratic majority controlled by the majority. whims of the moderates.

Si Sen. Joe Manchin (DW.Va.) has worried for months about the Fed’s ability to control the highest inflation rate in 30 years and seems questionable to support Powell until a call to the head of The Fed last week allayed some of its concerns. Biden’s future choices with more lenient attitudes to inflation may not pass to Manchin, who has often flexed his power to moderate Biden’s economic agenda, or gain any support from the Republican senator.

Senators also showed more discretion when reviewing Fed nominees, even when presented by their own party. Republican senators covered four of President Trump’s former Fed nominees, leaving a seat open for Biden when he took office.

“I don’t know that any of these are incredibly radical, but the perception of one like them that is not in the mainstream, apparently, creates a problem,” said Norbert Michel, director of the Center for Monetary and Financial Alternatives at the Libertarian Cato Institute.

“Depending on the exact makeup of the Senate, it will fly or not fly.”

Biden’s new nominees could be a bulwark against other FOMC members who have pushed the Fed to withdraw the stimulus sooner and faster than Powell and other members said it was necessary. While Powell and Fed officials lined up with the chairman believing that inflation is likely to weaken as the supply chain weakens associated with the pandemic, several presidents of the Fed’s regional reserve banks have openly called for earlier restrictions. in financial conditions.

“We don’t know who will take the nod, but you can be sure that they are deceitful Democrats, who will offset the clear hawkish shift in regional voters next year. In fact, it’s easy to see 2022 become a year of Washington vs. the regions, ”Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a review Tuesday.

However, some Fed scholars have stressed how difficult it will be for a new Democratic majority to make a big immediate impact on the central bank. The Fed is notoriously opposed to rapid policy change and has spent nearly a decade moving toward a new inflation strategy adopted last year.

“They are just moving slowly wherever politics takes them, so I don’t think anything radical will happen, even [Biden] puts, say, at least one like Elizabeth Warren, ”Michel said.

“It’s just not that easy for someone to rebuild the Fed.”

AY