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Senate Republicans are warning President Biden not to appoint Lael Brainard, currently Fed governor, to replace Federal Reserve Chairman Jerome Powell – hinting she could face a difficult confirmation process.
Why is this important: With a 50-50 Senate stuck in a dangerous deadlock on the debt ceiling, the president must decide how much political capital he is willing to spend by passing on Powell, a Republican appointed by former President Trump, to stamp his own seal on the Fed.
- Republicans on the banking committee are taking advantage of the current economic uncertainty, with the United States considering a potential default and supply chain disruption from COVID-19, to force Biden to rename Powell.
- “I wouldn’t vote for her,” Sen. Richard Shelby (R-Ala.) Told Axios. “She’s too liberal. You’d have a tough fight for confirmation.”
- “It’s a concern for us, just because you have Jay Powell who is experienced and who has proven to be a very good leader,” said Sen. Mike Rounds (RS.D.). “I think she’s a bit more liberal when it comes to her vision of a proactive Federal Reserve.”
Driving the news: Biden faces an October fraught with political risk and economic uncertainty – with big deadlines in the middle of the month.
- The Treasury Department will run out of money to service its debt on October 18. The president warned Monday of a “meteor about to crash” into the economy.
- The term of the Fed’s vice president for banking supervision, a powerful post currently held by Trump-appointed Randal Quarles, expires on October 13.
- The president’s term expires in February 2022, but presidents typically appoint someone months in advance to allow financial markets to process the news.
What they say : The White House says it doesn’t feel constrained by the schedule.
- “The president will continue to engage with his senior economics team in a prudent and thoughtful process to appoint a Federal Reserve chairman in a timely manner,” a White House official told Axios.
The big picture: After an extraordinary 18 months of battling the economic impacts of COVID-19, the Federal Reserve has been rocked by allegations that some of its officials, including Vice President Richard Clarida and two regional presidents, have profited from banking policy decisions .
- Senator Elizabeth Warren (D-Mass.) Asked Gary Gensler, chairman of the Securities and Exchange Commission, to “determine whether any of these ethically questionable transactions may have violated insider trading rules.”
- “It makes sense to investigate this and determine if the existing rules are adequate,” Sen. Pat Toomey (R-Pa.), Senior member of the Senate Banking Committee, told reporters on Monday evening.
Between the lines: While Powell’s re-appointment is not without political risk – Warren announced his opposition to a second term at a Senate hearing last week, calling him a “dangerous man” – some Democratic senators have also indicated that they supported his renomination. The stakes are also high for the president.
- Biden’s choice, if confirmed, would largely control macroeconomic dials ahead of the midterms of 2022 and the president’s potential re-election campaign in 2024.
- “Biden has a historic and unique opportunity to appoint at least four and possibly five members of the Fed’s board of directors,” said Dennis Kelleher, president and CEO of Better Markets, a nonprofit that works takes care of monitoring financial institutions.
- “He has to decide whether he wants to be transformational or progressive.”
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