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Brad Sherman, a California Democrat in the House of Representatives, was saying what many in his party privately believe when he called on President Joe Biden to re-elect Jay Powell for a second term as Federal Reserve Chairman.
“I went through two economic crises in Congress: 2008 and 2020. And 2020 has been managed a lot better,” Sherman told the Financial Times. “Reassuring people at a time when we are dealing with Covid and a certain level of inflation is a good idea. “
Democrats are, at the very least, leaving the door open for Powell to stay for another four-year term when his current term expires in February. It comes as deliberations intensify within the Biden administration over key Fed appointments in the coming weeks.
Randal Quarles’ term as vice president of banking supervision is expected to end in October, and there remains a vacant position on the board of governors. These are pieces of a puzzle that Biden will have to solve with his economic team. When asked by CNBC if she would recommend Powell for a second term on Friday, Janet Yellen, the US Treasury Secretary, said she would have “a chat” with Biden on the matter but was satisfied with the performance of the central bank.
“I have a lot of respect for the Federal Reserve. And it’s important for them to make independent judgments about what is appropriate. I think, you know, the Fed did a good job, ”she said.
The renewal of the Fed chairmanship has always been a great moment for US presidents. But traditionally, even the central bank chiefs of parties opposed to the White House have been given the green light at least once. Ronald Reagan has reappointed Paul Volcker, Bill Clinton twice renewed Alan Greenspan’s post, and Barack Obama called on Ben Bernanke for another turn during the financial crisis. It was Donald Trump who broke with precedent when he chose to elevate Powell, a Republican who was brought into the Fed by Obama, to replace Janet Yellen as Fed chief at the end of his term. early 2018.
Some Democrats – especially on the progressive side of the party – believe Biden should do the same and put his own mark on the leadership of the US central bank. But they struggled to find fault with Powell: He steered the Fed towards a very accommodating and accommodating response to the pandemic, and established a new policy framework that promises to halt preemptive rate hikes and continue. full employment more thoroughly than in the past.
Additionally, he publicly supported a strong fiscal response to the coronavirus crisis in 2020 and showed more empathy than usual for Fed chiefs regarding the impact of central bank policies on Americans. ordinary. The only area of persistent criticism of Powell from Democrats is that he is being too lenient on the banks.
“The Fed has canceled important guarantees, making it easier for the biggest banks to raise the price of their shares and strengthen their already enormous power in our economy,” said Sherrod Brown, Democratic Chairman of the Senate Banking Committee, at a press conference. hearing with Powell Thursday. But Brown, a key voice on Capitol Hill, did not call for Powell’s replacement and voted to confirm it the first time around.
Some Capitol Hill observers say the dilemma for left-wing Democrats is whether there is a candidate to replace Powell who could get confirmation, at least as accommodating as the current Fed chairman, without distracting Congress from his highest priority – advancing Biden’s remaining $ 4 billion. economic agenda.
“I just don’t know if there will be enough juice to fight over whether or not President Biden should reappoint Powell or whether he should go somewhere else,” says Meghan Pennington, former Democratic Assistant to the Senate, now at Hamilton Place Strategies, a Washington consulting firm.
A possible deal between Progressive Democrats and the White House could be to see Powell remain Fed chairman while Lael Brainard, a Fed governor tougher on financial regulation, will take Quarles’ post as vice chairman. supervision.
For the open seat on the board, many Democrats are pushing for a person of color, adding racial diversity to senior Fed officials: Brown backs Michigan State University professor Lisa Cook. But whether such an arrangement might work might depend on how Powell’s performance is judged over the next few months as he navigates the rise in inflation and the start of the downsizing process when the Fed begins to slow down. its rate of asset purchases of $ 120 billion per month.
Many investors, economists and market strategists say it would be prudent for Biden to offer Powell another term. “Whether you like politics or not, stability is what the markets will be looking for,” said Padhraic Garvey, regional research manager for the Americas at ING.
Roberto Perli, a former Fed staff member and head of global policy research at Cornerstone Macro, said Powell’s reappointment would be the “safest path.”
“Markets, which are already skeptical of the Fed’s commitment to the new framework, would likely question a potential new chairman’s ability to steer the committee in a direction consistent with the new framework, and the result would be probably higher interest rates, ”he said.
Sherman brushes aside Powell’s criticism for regulatory reasons, saying that in terms of “prudential solvency”, things had gone rather well. “The only thing you can criticize is that the banks are making too much money – and between being angry that the banks are making too much money and worrying that they will be shut down or they need a bailout, I’ll take the old one, ”he said.
As a member of the House, Sherman will not have a vote on the Fed chairmanship. He “suspects” that Powell will get a second term but “isn’t betting on it” and warns his colleagues of negative political repercussions in next year’s midterm elections if the reappointment fails.
“The number one thing on the progressive agenda is electing Democrats. . . Economic uncertainty is not a great way to get there, ”he said.
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